LIBRARY 

OF  THK 

UNIVERSITY  OF  CALIFORNIA. 

Class 


100 


/  Red  circles  indicate  individual  Plants, 
except  in  the  Lehigh  district  of 
Pennsylvania,  where  22  plants  are  too 
closely  grouped  to  admit  of  separate 
representation. 

L.L.POATE8,  ENGR'G  CO.,  N.Y 


C.San  Luc 


Longitude 


100 


MAP  OF  THE  UNITED  STATES  SHOWING 


. 


UNITED  STATES          o 


•  SHOWING  LOCATION  OF 
PORTLAND  CEMENT  PLANTS 


8** 


5     v 


^°s 


I 


Edwin  C.  Eckel,  1908 

SCALE  OF  MILES 


0      50    100  200  300          400          500 


.Fl  o  r 


from 


Greenwich 


NATION  OF  PORTLAND  CEMENT  PLANTS  IN  1908. 


THE 

PORTLAND  CEMENT  INDUSTRY 

FROM   A 

FINANCIAL  STANDPOINT 


By 
EDWIN  C.  ECKEL 


NEW  YORK 

MOODY'S  MAGAZINE 
1908 


"V 


* v 


COPYRIGHT,  1908,  By 

EDWIN  C.  ECKEL 

NEW  YORK 


T 


PREFACE 

is  at  present  every  indication  that  the 
first  broad  improvement  in  the  general  business 
situation  will  be  the  signal  for  the  attempted  flo- 
tation of  an  unprecedentedly  large  mass  of  cement  se- 
curities. Some  of  the  enterprises  against  which  these 
securities  are  issued  will  ultimately  prove  successful  and 
profitable;  some,  though  exploited  honestly,  will  prove 
to  have  been  mistakenly  planned;  a  third  and  not  in- 
considerable group  of  projects  will  be  exploited  for  the 
sole  purpose  of  defrauding  the  investor. 

The  Portland  Cement  Industry  is  of  great  and 
growing  importance.  Cement  plants,  when  properly 
financed,  located,  constructed  and  managed,  have  made 
very  satisfactory  returns  to  their  stockholders.  There 
is  still  room  in  the  industry  for  honestly  and  intelligently 
managed  new  enterprises,  but  competition  is  now  so 
keen  that  there  is  no  room  for  weak  plants — for  plants 
that  are  poorly  located  or  designed,  for  companies  that 
are  dishonestly  promoted  or  carelessly  managed.  The 
manufacture  of  cement  is  a  legitimate  industry,  and  the 
methods  of  mining  promoters  have  no  place  in  it. 

The  present  little  volume  attempts  to  discuss  cer- 
tain features  connected  with  the  financial  side  of  the 
Portland  Cement  Industry.  It  is  hoped  that  it  will 
prove  of  service  both  to  the  banker,  who  is  invited  to  aid 
in  the  flotation  of  cement  securities,  and  to  the  investor, 


187720 


who  is  invited  to  buy  them.  It  will  have  served  its  pur- 
pose if  it  aids  either  banker  or  investor  to  differentiate 
between  securities  offered  against  successful  existing 
plants  or  sound  projects,  with  reasonable  prospects  of 
success,  and  those  issued  against  foolishly  planned  or 
fraudulently  promoted  propositions. 


EDWIN  C.  ECKEL 


209  Munsey  Building, 
Washington,  D.C. 

October  81,  1908. 


CONTENTS 


CHAPTER  PAGE 

I.     THE   HISTORY   OF   THE   PORTLAND   CE- 

MENT INDUSTRY.  9 

The  early  English  natural  cements   .....  10 

Invention  and  early  history  of  Portland  Cement  jg 

Early  American  Portland  Cement  manufacture   .  jg 

The  rotary  kiln  and  its  effects  on  the  industry  .  14 

II.     THE   GROWTH    OF    THE    AMERICAN    CE- 

MENT INDUSTRY;  STATISTICAL.  1? 

American  Portland  Cement  production,  1870-1907  jy 
Production  of  Portland  Cement,  by  states,  1906- 

1907      .............  20 

Production  of  cement  by  districts,  1905-1907  .     .  21 

Imports    of   foreign   cement     .......  22 

Exports  of  domestic  cement   .......  22 

Annual  consumption  of  cement   ......  23 

The  course  of  cement  prices,  1875-1907  ....  24 

III.  THE  OUTLOOK  FOR  THE  FUTURE.  27 

The  future  growth  of  the  industry  .....  27 

Possible  decreases   in  operating  costs    ....  gj 

The  future  course  of  prices    .......  32 

Possible  price  regulation    ........  35 

Concentration  of  interest  in  the  cement  industry    .  37 

The  influence  of  patents  on  the  cement  industry  .  33 

The  growth  of  the  patent-holding  company  ...  39 

Present  status  of  concentration  in  the  industry  .  4,0 

Improvements  in  marketing  conditions  ....  4,2 

The  development  of  the  export  trade      ....  43 

Summary  of  future  prospects  .......  43 

IV.  FACTORS     INFLUENCING     THE     VALUA- 

TION OF  CEMENT  SECURITIES.  45 

Summary   of   cement  manufacture    .....  45 

Elements    of   plant   location    ......     -.  45 

Raw  materials  and  their  valuation   .....  4g 

Geographic  distribution  of  cement  material  in  thfc 

United  States     ..........  54 


CONTENTS 

CHAPTEB  PAGE 

The  importance  of  fuel  supplies 55 

Transportation    facilities 56 

Markets   and  competition 57 

Financial   plans 58 

V.     THE   METHODS   AND   PROFITS   OF   CE- 
MENT PROMOTIONS.  59 

The  impending  flood  of  cement  securities  .  59 
The  profits  of  cement  promotions;  their  source 

and  amount QQ 

THE  MISSTATEMENTS  OF  CEMENT 

PROSPECTUS   WRITERS 65 

A.  Misstatements   as   to   general   conditions  QQ 

B.  Excessive    valuations    of    raw    material 

supplies 6? 

C.  Misstatements  as  to  selling  prices     .  gg 

D.  Low  estimates  of  manufacturing  costs  .  gg 

E.  Exaggerated  estimates  of  profits  ...  gg 

VI.     THE      CAPITALIZATION      OF      CEMENT 

COMPANIES.  71 

Objections  to  over-capitalization 71 

The  basis  for  reasonable  capitalization    .     .     . 

Minimum   possible   capitalization 73 

Maximum  satisfactory  capitalization  ....  74, 

The  actual  capitalization  of  existing  companies  75 

VII.  CEMENT  BOND  ISSUES.  79 

The  general  status  of  industrial  bonds    ...  79 

Bond  issues  against  established  plants     ...  go 

Bond  issues  against  unbuilt  plants     ....  gi 

Examples  of  typical  cement  bond  offerings    .     .  gg 

Security  offered  for  bond  issues g3 

Earning  power  back  of  the  security  ....  g^ 

VIII.  THE  PROFITS  AND  LOSSES  OF  CEMENT 

MANUFACTURE.  84 

Accounts  of  a  Lehigh  District  cement  company  g7 

Accounts  of  a  Michigan  cement  company     .     .  gg 

Dividends  of  two  established  companies     ...  g  \ 

The  chance  of  success  and  failure g 


ILLUSTRATIONS 

MAP  OF  THE  UNITED  STATES  SHOW- 
ING LOCATION  OF  PORTLAND  CE- 
MENT PLANTS  IN  1908 Frontispiece 

FIGURE  PAGE 

I.  GROWTH  OF  PORTLAND  CEMENT 
OUTPUT,  1890-1907,  AND  COMPARI- 
SON WITH  DECLINE  OF  NATURAL 
CEMENT 19 

II.  THE    COURSE    OF    CEMENT    PRICES, 

1880-1907 25 

III.  COMPARISON     OF     PORTLAND     CE- 

MENT    AND     PIG-IRON     PRODUC- 
TION, 1890-1907 29 

IV.  COMPARISON     OF     PRICE-DECLINES 

IN    STEEL    RAILS    (1867-1907)    AND 
PORTLAND  CEMENT  (1880-1907).     ...  33 


OF  THE 

f    UNIVERSITY 
\  OF 

THE 

PORTLAND  CEMENT  INDUSTRY 

from  a 

FINANCIAL  STANDPOINT 

CHAPTER 
I 

THE  HISTORY   OF  THE  PORTLAND 
CEMENT  INDUSTRY 

IN  spite  of  the  present  and  growing  importance  of  the 
industry,  the  history  of  Portland  Cement  manufac- 
ture covers  a  relatively  short  period  of  time,  as  compared 
with  that  of  the  iron  industry,  for  example.  Contrary 
to  a  somewhat  popular  idea,  the  ancients  do  not  seem 
to  have  been  acquainted  with  cements  of  the  type  which 
are  now  so  widely  employed.  The  "cements"  used  by 
the  Romans,  for  example,  were  not  burned  products 
similar  to  the  Portland  Cement  now  used,  but  were  made 
by  mixing  slaked  lime  with  a  powdered  volcanic  ash, 
called  pozzuolana.  These  pozzuolanic  or  "puzzolan" 
cements  still  survive,  though  not  of  the  greatest  indus- 
trial importance. 

During  the  Middle  Ages  even  the  use  of  the  puz- 
zolan cements  seems  to  have  been  discontinued  for  large 
structural  work.  In  those  periods  the  material  used  for 
holding  masonry  together  was  a  plain  lime  mortar, 
though  by  using  time  and  great  care  in  the  preparation 
of  the  lime,  the  mortar  and  the  masonry,  structures  of 
great  strength  and  durability  were  finally  developed. 
This  use  of  lime  as  the  only  mortar  material  persisted 
down  to  near  the  close  of  the  Eighteenth  Century,  when 
a  new  series  of  cementing  materials,  of  essentially  mod- 


THE    PORTLAND    CEMENT    INDUSTRY 

ern  type,  was  developed  through  careful  experiment, 
almost  simultaneously  in  France  and  England. 

THE  EARLY  ENGLISH  NATURAL  CEMENTS 

In  1756  or  thereabouts  Smeaton,  the  English  engineer,  be- 
gan a  series  of  experiments  on  lime  mortars,  the  point  at  in- 
terest being  the  selection  of  a  lime  calculated  for  use  in  marine 
construction,  and  the  immediate  necessity  for  the  experiments 
being  the  construction  of  the  Eddystone  lighthouse.  No  record 
of  these  experiments  was  published  until  1791,  so  that  they  had 
no  immediate  influence  on  engineering  practise.  Smeaton  soon 
found  that  the  property  of  hardening  under  water,  known  to  be 
possessed  by  some  limes,  was  not  due  to  the  purity  of  these  par- 
ticular limes,  as  had  been  long  supposed.  In  fact,  the  truth  of  the 
matter  was  quite  the  reverse,  for  the  very  impure,  clayey  lime- 
stones, when  burned,  would  harden  under  water,  while  the  pure 
limes  would  not.  Though  the  experiments  of  Smeaton  were  ap- 
parently not  carried  to  the  point  of  making  a  true  cement,  his 
conclusions  regarding  the  effect  of  clay  in  limestone  opened  the 
way  for  further  investigation  and  research. 

The  next  step  marked  a  great  advance  in  practise.  This 
was  the  invention  in  1796  in  England,  and  almost  simultaneously 
in  France,  of  a  cement  like  our  present-day  natural  or  Rosen- 
dale  cements.  Parker,  who  took  out  an  English  patent  in  1796, 
later  termed  his  new  product  "Roman"  cement,  which  was  clearly 
a  misnomer,  for  he  had  invented  a  product  never  known  to  the 
Romans.  The  Parker  patent  contemplated  the  use,  as  a  raw 
material,  of  certain  concretions  common  in  some  of  the  English 
coastal  formations,  and  consisting  of  a  natural  mixture  of  clay 
and  limey  matter.  These  concretions  were  to  be  burned  "with 
a  heat  stronger  than  that  used  for  burning  lime."  When  so 
burned,  the  product  would  not  slack  naturally  when  water  was 
applied  to  it,  as  would  an  ordinary  lime,  but  it  required  to  be 
first  powdered.  After  powdering,  however,  the  resulting  "Ro- 
man cement"  would  harden  when  mixed  into  a  paste  with  water, 
and  this  paste  would  harden  not  only  in  air,  but  also  when  placed 
under  water. 

10 


HISTORY    PORTLAND    CEMENT    INDUSTRY 

Parker's  cement  soon  came  into  general  use  in  England,  while 
a  series  of  similar  products  were  manufactured  in  France  and 
in  other  portions  of  the  Continent.  The  introduction  of  natural 
cement  manufacture  into  the  United  States  took  place  in  1819, 
the  discovery  of  the  native  raw  materials  in  central  New  York 
being  due  directly  to  the  construction  of  the  Erie  Canal.  From 
that  date  on,  the  manufacture  of  natural  cement  spread  rapidly 
in  the  United  States.  Mr.  R.  W.  Lesley  has  pointed  out  the 
direct  relation  of  our  early  natural  cement  industry  to  the  canal 
construction  which  was  then  so  prevalent.  "The  first  large  pub- 
lic works  built  in  this  country  were  the  canals,  and  the  most 
necessary  thing  to  build  a  canal  was  mortar  that  would  hold  the 
stones  together  at  the  locks,  or  walls,  under  water.  Consequent- 
ly, wherever  canals  were  to  be  built,  there  was  a  search  for  ce- 
ment rocks,  and  all  the  earliest  works  in  this  country  were  estab- 
lished on  the  lines  of  canals.  Thus,  on  the  Chesapeake  and 
Ohio  Canal  are  the  Cumberland  and  Round  Top  Works ;  on  the 
Lehigh  Canal  the  works  at  Siegfrieds  and  Coplay,  Pa. ;  on  the 
Richmond  and  Allegheny  Canal  the  works  at  Balcony  Falls, 
Va. ;  on  the  Delaware  and  Hudson  Canal  the  large  group  of 
works  at  Rosendale  and  Kingston ;  and  on  the  Falls  of  the  Ohio 
Canal  the  large  aggregation  of  works  about  Louisville.  From 
this  same  fact  grew  the  early  package  used  in  shipping  cement 
in  this  country,  the  barrel,  which  was  the  package  best  adapted 
to  water  transportation;  and  it  took  many  years,  ever  since  the 
railroads  came,  to  overcome  the  prejudice  for  this  form  of  pack- 
age and  to  substitute  the  paper  or  duck  bag  for  the  barrel." 

The  natural  cement  industry  grew  rapidly  in  the  United 
States,  reaching  a  maximum  production  of  not  quite  ten  million 
barrels  in  1899.  From  that  date  onward,  however,  it  began  to 
suffer  heavily  from  the  competition  of  domestic  Portland  Ce- 
ment, and  in  the  last  decade  the  output  of  natural  cement  has 
shown  an  almost  continuous  and  quite  rapid  annual  decrease, 
until  now  it  has  become  a  relatively  unimportant  factor  in  the 
cement  situation.  This  matter  will  be  noted  later,  in  discussing 
the  statistical  growth  of  the  American  Portland  Cement  industry. 


II 


THE    PORTLAND    CEMENT    INDUSTRY 

THE  INVENTION  AND  EARLY  HISTORY  OF 
PORTLAND  CEMENT 

In  following  out  the  growth  and  decline  of  the  American 
natural  cement  industry  we  have  overrun  considerably  the  course 
of  events  as  regards  Portland  Cement,  but  it  seemed  advisable 
to  complete  a  sketch  of  the  earlier  product  before  taking  up 
the  newer  and  more  important  material. 

The  history  of  Portland  Cement  begins  a  quarter-century 
after  that  of  Parker's  "Roman"  cement.  In  1824,  Aspdin  took 
out  an  English  patent  for  an  artificial  cement,  which  he  named 
"Portland"  cement,  because  of  a  rather  fanciful  resemblance  be- 
tween the  set  cement  and  a  favorite  English  building  stone — 
the  oolitic  limestone  of  Portland. 

Aspdin's  patent  specification  covered  the  general  method  of 
Portland  cement  manufacture,  though  it  omitted  to  mention  cer- 
tain important  factors  or  limitations  in  the  process.  He  speci- 
fied that  a  pure  limestone  was  to  be  burned  into  lime.  This  lime 
was  to  be  mixed  with  a  specific  quantity  of  "argillaceous  earth 
or  clay,"  and  the  mixture  was  then  to  be  pulverized  in  a  wet 
state.  The  wet  mix  was  to  be  dried,  broken  into  lumps,  and  cal- 
cined in  a  kiln;  and  finally  the  burned  product  was  to  be  pow- 
dered. The  only  serious  omissions  in  this  statement  are  that  the 
relative  amounts  of  lime  and  clay  are  not  specified,  and  that  no 
mention  is  made  of  the  fact  that  it  was  necessary  to  burn  the  mix 
at  a  temperature  considerably  above  that  of  an  ordinary  lime 
kiln.  But  that  these  omissions  were  not  due  to  lack  of  knowl- 
edge, but  to  carelessness  or  caution,  is  evidenced  by  the  facts 
that  Aspdin  was  actively  engaged  in  Portland  Cement  manufac- 
ture within  a  year  of  the  issuance  of  his  patent,  and  that  the 
Aspdin  family  long  continued  to  be  prominent  in  the  English 
Portland  Cement  industry. 

The  English  Portland  Cement  industry  showed  for  many 
years  a  very  slow  rate  of  growth,  and,  though  manufacture  of 
the  new  product  was  taken  up  on  the  Continent  quite  early,  the 
total  production  was  not  very  large.  About  1850,  however,  a 
distinct  increase  in  output,  both  in  England  and  in  Germany, 

12 


HISTORY    PORTLAND    CEMENT    INDUSTRY 

appears  to  have  taken  place,  and  from  this  time  on  Portland 
Cement  began  to  displace  the  older  natural  cements  in  all  Euro- 
pean markets,  while  it  gradually  became  an  important  article  of 
import  into  the  United  States. 


EARLY  AMERICAN  PORTLAND  CEMENT 
MANUFACTURE 

In  spite  of  the  growth  of  the  Portland  Cement  industry 
abroad,  it  was  not  until  the  third  quarter  of  the  Nineteenth  Cen- 
tury that  the  manufacture  was  taken  up  in  this  country.  Then, 
as  in  many  similar  cases,  it  arose  almost  simultaneously  in  sev- 
eral parts  of  the  country,  experiments  being  carried  on  almost 
or  quite  independently  at  a  number  of  small  plants.  In  1872  an 
attempt  was  made  to  utilize  marl  and  clay  in  the  manufacture  of 
Portland  Cement  near  Kalamazoo,  Mich.,  but  this  first  project 
seems  to  have  been  entirely  unsuccessful  commercially,  and  it  is 
certain  that  it  exerted  no  influence  on  later  experiments.  In 
1875  a  true  Portland  was  being  made  at  a  small  plant  in  Western 
Pennsylvania,  the  materials  there  used  being  limestone  and  clay. 
This  plant,  at  Wampum,  Pa.,  is  still  in  existence.  At  about  the 
same  date  small  experimental  plants  were  erected  in  New  York 
State,  but  these  did  not  result  in  immediate  returns. 

In  the  meantime,  the  basis  for  the  great  Portland  Cement  in- 
dustry of  the  Lehigh  district  was  being  laid,  the  start  being  made 
from  rather  unpromising  conditions.  Natural  cement  had  long 
been  manufactured  in  the  Lehigh  region,  and  in  the  early  seven- 
ties attempts  were  made  by  Mr.  D.  O.  Say  lor  and  his  associates 
to  select  from  the  natural  cement  quarries  the  beds  which  might 
on  burning  furnish  a  Portland  Cement.  The  result,  though 
always  variable  and  usually  unsatisfactory,  was  that  a  certain 
small  tonnage  of  good  Portland  Cement  began  to  be  produced 
annually  in  this  district,  really  as  a  sort  of  by-product  of  the 
natural  cement  industry.  The  present  Coplay  Cement  Co.  is 
the  outgrowth  of  the  first  successful  attempt  to  manufacture 
Portland  Cement  in  this  district. 

13 


THE    PORTLAND    CEMENT    INDUSTRY 

It  must  be  borne  in  mind  that  at  this  stage  in  the  industry 
the  wet  process  and  stationary  kilns  were  in  use  in  America  as 
well  as  in  Europe.  This  involved  reducing  the  raw  materials 
to  powder,  mixing  to  a  paste  with  water,  forming  the  mixture  in- 
to bricks  or  balls,  charging  into  and  burning  in  a  stationary 
kiln,  and  again  reducing  the  clinkered  masses  thus  formed  to 
powder.  When  naturally  soft  and  wet  raw  materials  were  used, 
like  marl  and  clay,  the  earlier  stages  of  this  process  were  of 
course  considerably  simplified,  but  with  the  hard,  dry  raw  ma- 
terials of  the  Lehigh  district  the  cost  was  almost  prohibitive. 
Under  American  conditions  as  to  high-priced  labor,  it  was  evi- 
dent that  the  cement  industry,  if  carried  on  in  such  a  fashion, 
stood  little  chance  for  growth  in  this  country.  This  indeed 
proved  to  be  the  case  and  for  a  number  of  years  little  or  no  in- 
crease in  American  production  could  be  noted,  while  the  margin 
of  profit  as  against  foreign  cements  cheaply  laid  down  in  our 
coast  cities  was  too  small  to  encourage  the  American  manufac- 
turer to  increase  his  output. 

THE  ROTARY  KILN  AND  ITS  EFFECTS  ON  THE 
INDUSTRY 

It  was  early  recognized  that  the  relatively  dear  labor  and 
cheap  fuel  of  America,  as  contrasted  with  the  cheap  labor  and 
dear  fuel  of  Europe,  would  necessitate  serious  changes  in  Port- 
land Cement  manufacture  if  that  industry  were  ever  to  be  es- 
tablished on  a  firm  footing  in  this  country.  In  the  general 
effort  to  cut  down  the  excessive  labor-cost  of  the  product,  two 
points  of  attack  were  obvious.  In  order  to  fit  the  industry  in- 
to American  conditions  both  the  burning  and  the  grinding  pro- 
cesses must  be  cheapened,  and  this  was  effected  when  the  old 
stationary  kilns  and  millstones  were  displaced,  respectively,  by 
the  rotary  kiln  and  by  modern  grinding  machinery.  Of  the 
two  changes,  the  substitution  of  the  rotary  for  the  stationary 
kiln  was  the  more  distinctively  American  in  its  development, 
and  demands  further  attention  because  of  the  important  effects 
which  it  had  upon  the  general  course  of  the  industry. 

14 


/? F THt 
JI/ERSITY 
\  j     OF  / 

\£jL'FO£i 


HISTORY    PORTLAND    CEMENT    INDUSTRY 

The  Ransome  Patents  (Great  Britain,  1885;  United  States, 
1886)  are  looked  upon  as  the  basis  on  which  later  developments 
in  the  use  of  the  rotary  kiln  were  founded,  since  the  kilns  now 
in  use  are  direct  successors  of  those  of  the  Ransome  type. 

It  had  been  expected  that  the  fuel  used  in  the  Ransome  kiln 
would  be  producer  gas,  but  as  a  matter  of  fact,  when  the  rotary 
was  first  successfully  used  in  the  cement  industry — at  South 
Rondout,  N.Y.,  in  1889 — petroleum  was  used  as  fuel,  and  for 
a  number  of  years  this  continued  to  be  the  usual  American 
practise.  At  the  South  Rondout  plant  it  was  found  possible 
to  charge  the  mixed  and  ground  raw  materials  directly  to  the 
kiln,  without  wetting,  so  that  another  step  was  made  in  the  in- 
dustry. In  1891,  at  Montezuma,  N.Y.,  naturally  wet  raw  ma- 
terials were  charged  into  the  kiln  without  preliminary  drying. 
The  two  main  types  of  present  American  practise  were  thus 
in  existence — the  dry  process,  used  with  limestone  or  cement- 
rock,  and  the  wet  process,  used  with  marl. 

The  next  step  in  the  development  of  the  rotary  came  when 
powdered  coal  was  substituted,  as  a  fuel,  for  petroleum.  This 
took  place  about  1895,  and  soon  became  standard  practise 
throughout  the  United  States.  This  change  brought  about 
long  and  costly  litigation  regarding  the  patent  rights  involved, 
and  it  is  probable  that  this  condition  will  continue  for  some  time. 
The  matter  will  again  be  referred  to  later  in  this  volume,  in 
discussing  the  effects  of  patents  on  the  cement  industry. 

The  latest  development  in  the  rotary  kiln  has  been  purely  a 
matter  of  dimension.  Five  years  ago  American  rotaries  had  ar- 
rived at  a  practically  standard  length  of  sixty  feet,  with  a  nomi- 
nal capacity  of  two  hundred  barrels  of  cement  daily.  Since 
that  date,  both  size  and  capacity  have  been  largely  increased, 
the  kilns  now  installed  being  from  one  hundred  to  one  hundred 
and  fifty  feet  in  length,  and  giving  an  output  of  from  three  hun- 
dred to  five  hundred  or  more  barrels  daily. 

IMPROVEMENTS  IN  GRINDING  APPARATUS. 

Running  on  parallel  lines  with  the  improvements  in  the  rotary 
process  of  burning  cement  came  the  great  changes  in  crushing 

15 


THE    PORTLAND    CEMENT    INDUSTRY 

and  grinding  machinery,  which  have  enabled  the  industry  to  deal 
with  its  enormous  tonnage  of  raw  and  finished  material.  From 
the  cracker  crushers  and  mill  stones  of  the  early  "80's"  to  the 
great  Gates  &  McCully  crushers,  and  the  Griffin,  Fuller,  Hunt- 
ingdon tube  and  other  iron  mills  of  the  present  day,  was  an 
immense  step  forward.  Many  of  these  changes  were  worked  out 
at  the  mills  of  the  American  Cement  Company  at  Egypt,  Lehigh 
County,  Pa.,  by  Messrs.  Eckert  and  Lesley,  old  associates  of 
Saylor  and  also  at  the  Lehigh,  Alpha  and  Atlas  mills  in  the  same 
region. 

Each  of  the  steps  above  briefly  outlined  has  had  a  marked 
effect  on  the  industrial  status  of  Portland  Cement  manufacture 
in  the  United  States.  The  most  obvious  result,  of  course,  has 
been  the  rapid  growth  of  the  industry  as  regards  total  annual 
output.  Coincident  with  this,  however,  has  come  a  cheapening 
of  the  product,  and  this  steady  fall  in  prices  is  often  overlooked 
when  new  developments  are  planned.  Both  of  these  phases  of 
the  cement  industry  are  best  illustrated  by  long  series  of  com- 
parative statistics,  and  the  following  chapter  will  therefore  be 
devoted  to  a  statistical  consideration  of  the  growth  of  the 
American  cement  trade. 


16 


CHAPTER 
II 

THE  GROWTH  OF  THE  AMERICAN 
CEMENT  INDUSTRY— STATISTICAL 

IN  the  present  chapter  statistical  data  are  presented 
relative  to  the  production  of  Portland  Cement  in  the 
United  States,  imports  and  exports  of  cement,  apparent 
annual  consumption  of  cement,  average  prices,  etc. 
These  data  are  official,  being  quoted  from  the  reports 
on  this  industry  annually  issued  by  the  United  States 
Geological  Survey,  though  in  many  cases  the  tables 
have  been  rearranged  to  better  suit  the  purposes  of  the 
present  volume. 

AMERICAN  PRODUCTION  OF  PORTLAND  CEMENT, 

1870-1907 

Of  course  any  deductions  that  may  be  made  concerning  the 
possible  future  growth  of  the  American  cement  industry  must 
be  based  upon  a  study  of  the  facts  relative  to  its  past  develop- 
ment. In  the  table  following,  statistics  are  given  covering  the 
annual  production  of  Portland  Cement  in  this  country  from  the 
inception  of  the  industry  to  the  present  day. 

On  examination  of  the  above  table,  it  will  be  seen  that  the  in- 
dustry showed  a  fair,  but  not  in  any  way  remarkable,  rate  of 
growth  from  its  commencement  in  the  seventies  until  1895.  At 
the  latter  date,  however,  a  very  striking  development  commenced, 
coincident,  it  may  be  noted,  with  the  development  of  coal-burn- 
ing in  the  rotary  kiln.  This  rapid  rate  of  growth  continued  un- 
til 1907,  when  it  was  checked  temporarily  by  the  financial  crisis 
of  that  year. 

The  phenomenal  growth  of  the  industry  in  this  period  is 
illustrated  very  strikingly  in  the  diagram  below,  where  it  is 
shown  graphically  for  the  years  1890  to  1907,  inclusive.  For 
comparison,  the  decline  in  the  natural  cement  industry  is  plotted 
on  the  same  diagram. 

17 


THE    PORTLAND    CEMENT    INDUSTRY 

American  Production  of  Portland  Cement,  1870-1907. 


YEAR 

BARRELS 

VALUE 

1870-1879 

82,000 

$    246,000. 

1880 

42,000 

126,000. 

1881 

60,000 

150,000. 

1882 

85,000 

191,250. 

1883 

90,000 

193,500. 

1884 

100,000 

210,000. 

1885 

150,000 

292,500. 

1886 

150,000 

292,500. 

1887 

250,000 

487,500. 

1888 

250,000 

487,500. 

1889 

300,000 

500,000. 

*1890 

335,500 

704,050. 

1891 

454,813 

967,429. 

1892 

547,440 

1,153,600. 

1893 

590,652 

1,158,138. 

1894 

798,757 

1,383,473. 

1895 

990,324 

1,586,830. 

1896 

1,543,023 

2,424,011. 

1897 

2,677,775 

4,315,891. 

1898 

3,692,284 

5,970,773. 

1899 

5,652,266 

8,074,371. 

1900 

8,482,020 

9,280,525. 

1901 

12,711,225 

12,532,360. 

1902 

17,230,644 

20,864,078. 

1903 

22,342,973 

27,713,319. 

1904 

26,505,881 

23,355,119. 

1905 

35,246,812 

33,245,867. 

1906 

46,463,424 

52,466,186. 

1907 

48,785,390 

53,992,551. 

*The  figures  for  1890  and  prior  years  were  estimates  made  at  the  close 
of  each  year,  but  are  believed  to  be  substantially  correct.  Since  1890  the 
official  figures  are  based  on  complete  returns  from  all  producers. 

On  examining  the  cement  statistics  for  a  series  of  years,  it 
will  be  seen  that  the  output  of  Portland  Cement  has  so  far 
shown  an  increase  each  year,  rising  from  42,000  barrels  in  1880 
to  335,500  barrels  in  1890,  to  8,482,020  barrels  in  1900,  and 
to  48,785,390  barrels  in  1907.  The  natural  cement  production, 
on  the  other  hand,  reached  its  maximum  in  1899,  with  an  out- 
put of  9,868,179  barrels.  Since  that  year  it  has  shown  an  al- 
most continuous  and  quite  rapid  decrease  annually,  until  now  it 
has  become  a  relatively  unimportant  factor  in  the  cement  situa- 


18 


45,000,000 


40,000,000 


85,000,000 


30,000,000 


25,000,000 


20,000,000 


15,000,000 


10,000,000 


5,000,000 


/l\ 


NX 


»M.  CEMENT, 


fig.  I    COMPARISON  OFTROOUCTION  OF  PORTLAND 
AND  NATURAL  CEMENT,  1890-1907 

19 


THE    PORTLAND    CEMENT    INDUSTRY 


tion.     These  facts  are  brought  out  clearly  in  the  appended  dia- 
gram (Figure  1). 

The  total  Portland  Cement  production  of  the  United  States 
in  1907  was  48,785,390  barrels,  valued  at  $53,992,551,  an  in- 
crease over  the  output  of  1906  of  2,321,966  barrels,  or  about 
five  per  cent,  in  quantity,  and  of  $1,526,365,  or  about  three  per 
cent,  in  value.  The  distribution  of  this  total  among  the  different 
producing  states  in  1907  is  given  in  the  following  table.  The 
production  by  states  for  1906  is  included  for  comparison: 

Production  of  Portland  Cement  in  the  United  States  in  1906 
and  1907,  by  states. 


1906 

1907 

State 

C* 

•S«s 

Quantity 

(barrels) 

Value 

State 

1  Producing 
plants 

Quantity 
(barrels) 

Value 

Illinois  .    . 

4 

1,858,403 

$2,461,494 

Illinois  .    . 

5 

2,036,093 

$2,632,576 

Indiana     . 

6 

3,951,836 

4,964,855 

Indiana 

7 

3,782,841 

4,757,860 

Kansas  .    . 

4 

3,020,862 

3,908,708 

Kansas  .    . 

5 

3,353,925 

4,240,358 

Michigan  . 
New  Jersey 

14 
3 

3,747,525 
4,423,648 

4,814,965 
4,445,364 

Michigan  . 
New  Jersey 

14 
3 

3,572,668 
4,449,896 

4,384,731 
4,738,516' 

New  York 

9 

2,414,362 

2,725,744 

New  York 

9 

2,290,955 

2,433,918 

Ohio  .    .    . 

8 

1,422,901 

1,709,918 

Ohio  .    .    . 

9 

1,151,176    1,377',  155 

Penn.     .    . 

19 

18,645,015 

18,598,439 

Penn.     .    . 

22 

20,393,965 

19,698,006 

Alabama  . 

1 

"j 

Alabama  . 

2 

Georgia     . 
Virginia     . 
W.  Virginia 

1 
1 
1 

>1,  172,041 

1,432,023 

Georgia     . 
Virginia     . 
W.Virginia 

1 
1 
1 

1,274,470 

1,383,305 

Arizona 

1 

1 

Arizona     . 

1 

Colorado    . 

1 

S.  Dakota 

1 

534,534 

915,301 

S.  Dakota 

1 

1,146,396 

2,034,382 

Texas     .    . 

2 

Utah  .    .'    .' 

2 
1 

California 
Wash.    .    . 

4 
1 

1  1,893,004 

2,715,398 

California 
Wash.    .    . 

3 
1 

|l,310,435 

2,110,294 

Colorado   . 
Utah  .    .    . 

1 

2 

) 
864,938 

1,395,179 

Kentucky 
Missouri    . 

1 
2 

j-3,350,000 

3,260,000 

Kentucky 
Missouri    . 

1 

2 

) 

|3,186,925 

3,320,248 

Total.    . 

84 

46,463,424 

52,466,186 

Total  .    . 

94 

1 

48,785,390 

53,992,551 

In  the  foregoing  table,  the  outputs  of  states  having  only 

20 


GROWTH    AMERICAN    CEMENT    INDUSTRY 

one  or  two  active  plants  are  combined,  so  as  to  prevent  publi- 
cation of  individual  figures.  In  1907,  for  example,  the  follow- 
ing combinations  are  made:  Alabama,  Georgia,  Virginia,  and 
West  Virginia;  Kentucky  and  Missouri;  Colorado  and  Utah; 
Texas,  Arizona,  and  South  Dakota ;  California  and  Washington. 

PRODUCTION    BY   DISTRICTS 

The  Portland  Cement  Industry  exhibits  the  same  tendency 
toward  geographic  centralization,  though  to  a  less  degree,  that 
has  given  Pittsburg  its  preeminence  as  an  iron  producer.  In 
the  case  of  the  Portland  Cement  Industry  the  concentration  of 
plants  is  in  the  so-called  Lehigh  district  of  Pennsylvania,  with 
its  New  Jersey  continuation.  Here,  21  plants  made  over  24,- 
400,000  barrels,  or  slightly  over  half  of  all  the  Portland  Cement 
produced  in  the  United  States  in  1907.  The  Lehigh  district 
was  the  point  where  American  Portland  Cement  manufacture 
was  first  undertaken,  and  it  owes  its  continued  preeminence  to 
the  possession  of  good  raw  materials,  good  labor,  good  and  fairly 
cheap  fuel,  and  excellent  transportation  facilities  to  large  East- 
ern markets. 


Geographic  Distribution  of  Portland  Cement  Industry 
1905-1907 


Plants  in  opera- 
tion. 

Output,  in  barrels. 

Percentage  of 
total  output* 

1905 

1906 

1907 

1905 

1906                  1907 

1905 

1906 

1907 

East  .    .    . 

30 

31 

34 

19,589,675 

25,483,025 

27,134,816 

55.6 

54.9 

55.6 

Central.    . 

32 

34 

37 

10,723,802 

14,030,665 

13,479,703 

30.4 

30.2 

27.6 

West.    .    . 

7 

8 

10 

2,470,349 

3,834,656 

4,463,397 

7.0 

8.2 

9.2 

Pac..  Coast 

3 

4 

5 

1,225,429 

1,310,435 

1,893,004 

3.5 

2.8 

3.9 

South     .    . 

7 

7 

8 

1,237,557 

1,804,643 

1,814,470     3.5 

3.9 

3.7 

Total     .    . 

79 

84 

94 

35,246,812 

46,463,424 

48,785,390 

100.0 

100.0 

100.0 

Taking  a  general  view  of  the  matter,  the  present  geographic 
distribution  of  the  cement  industry  is  well  shown  in  the  above 
table.  The  term  "East,"  as  here  used,  includes  plants  in 
Pennsylvania,  New  York,  and  New  Jersey,  none  being  located  in 


21 


THE    PORTLAND    CEMENT    INDUSTRY 

New  England.  The  "Central"  plants  are  those  in  Ohio,  Indiana, 
Illinois,  Michigan,  and  Missouri.  Under  "West"  are  included 
Kansas,  Colorado,  South  Dakota,  Arizona,  and  Utah.  On  the 
Pacific  Coast  are  the  four  active  California  plants  and  one  re- 
cently started  in  Washington.  The  "South"  includes  Virginia, 
West  Virginia,  Georgia,  Alabama,  Arkansas,  Texas,  and  Ken- 
tucky. 


IMPORTS  OF  FOREIGN  CEMENT 

The  following  table  contains  the  amount  of  foreign  cement 
imported  into  the  United  States  during  the  years  1878  to  1907, 
inclusive.  It  is  to  be  noted  that,  owing  to  the  manner  in  which 
import  statistics  are  grouped  under  existing  tariff  schedules,  the 
quantities  given  include  not  only  Portland  Cement,  but  all  other 
hydraulic  cements.  The  Portland  Cement,  however,  probably 
makes  up  at  least  95  per  cent  of  the  total  in  each  year. 

Imports  of  foreign  cement,  1878-1907. 


YEAR                  QUANTITY 

YEAR                  QUANTITY 

|  YEAR 

QUANTITY 

1878                        92,000 

1888  1,835,504 

1898 

1,152,861 

1879                      106,000 

1889  1,740,356 

1899 

2,108,388* 

1880                 .     187,000 

1890  1,940,186 

1900 

2,386,683* 

1881             .    .     221,000 

1891  2,988,313 

1901 

939,330* 

1882      .           .     370,406 

1892  2,440,654 

1902 

1,963,023* 

1883                      456  418 

1893                   2,674,149 

1903 

2,251,969* 

1884  '.                    585,768 

1894  2,638,107 

1904 

968,409* 

1885                      554,396 

1895      ....  2,997,395 

1905 

896,845* 

1886                      915,255 

1896      ....  2,989,597 

1906 

2,273,493* 

1887  1,514,095 

1897  2,090,924 

1907 

2,033,463* 

*  "Imports  for  consumption."    All  other  years'  figures  given  are  for  "total  imports." 


EXPORTS 

The  United  States  now  possesses  only  a  small  export  trade 
in  cement,  the  amount  annually  exported  ranging  usually  be- 
tween 1  per  cent  and  3  per  cent  of  the  domestic  production. 


GROWTH    AMERICAN    CEMENT    INDUSTRY 

As  noted  later,  there  seem  to  be  excellent  reasons  for  increasing 
this  export  trade  as  rapidly  as  possible,  and  it  may  soon  become 
a  more  important  feature  of  the  industry. 

The  following  table  gives  the  quantity  and  value  of  all  classes 
of  Itydraulic  cement  exported  during  the  years  1900-1907,  in- 
clusive. These  totals  represent  almost  entirely  exports  of  Port- 
land Cement. 


Exports  of  hydraulic  cement,  1900-1906,  in  barrels. 


Year 

Quantity 

1 
Value 

Year 

Quantity 

Value 

1900   . 

100,400 

$225,306 

1904  . 

774,940 

$1,104,086 

1901   .    .    . 

373,934 

679,296      ii  1905  .   .   . 

897,686 

1,387,906 

1902  .    .    . 

340,821 

526,471 

1906  .    .    . 

583,299 

944,886 

1903  .   .    . 

285,463 

433,984       111907.    .    . 

900,550 

APPARENT  ANNUAL  CONSUMPTION 

The  table  below  contains  data  on  the  apparent  annual  con- 
sumption of  Portland  Cement  in  the  United  States  for  recent 
years.  The  computed  results  are  of  course  merely  approxi- 
mations to  the  truth,  for  unavoidable  errors  arise  from  the  facts 
that  (a)  both  imports  and  exports,  as  reported  officially,  include 
not  only  Portland  but  small  quantities  of  other  classes  of  ce- 
ment; and  (b)  no  data  are  available  as  to  stocks  on  hand  at 
mills  or  at*  distributing  points  at  the  close  of  each  year. 


Apparent  annual  consumption  of  Portland  Cement,  barrels 


1902 
1903 
1904 
1905 
1906 
1907 

Domestic 
Production 

Imports 

Total  Available 
Supply 

Exports 

Apparent 
Consumption 

17,230,644 
22,342,973 
26,505,881 
35,246,812 
46,463,424 
48,785,390 

1,963,023 
2,251,969 
968,410 
896,845 
2,273,493 
2,033,463 

19,193,667 
24,594,942 
27,474,291 
36,143,657 
48,736,917 
50,818,853 

340,821 
285,463 
774,940  - 
897,686 
583,299 
900,550 

18,852,846 
24,309,479 
26,699,351 
35,245,971 
48,153,618 
49,918,303 

OF  THE 

UNIVERSITY. 


THE    PORTLAND    CEMENT    INDUSTRY 


THE  COURSE  OF  CEMENT  PRICES,  1875-1907 

Perhaps  the  most  striking  feature  connected  with  the  Ameri- 
can Portland  Cement  Industry  has  been  the  decline  in  cement 
prices  during  the  past  thirty  years.  This  decline  has,  as  a  mat- 
ter of  fact,  been  as  steady  and  as  marked  as  the  growth  in  an- 
nual output. 

The  following  table  gives  the  average  price  per  barrel  of 
American  Portland  Cement,  in  bulk  at  the  point  of  manufacture. 
It  is  derived  from  the  official  figures  on  total  output  and  value 
published  annually  by  the  United  States  Geological  Survey. 


Average  prices  of  Portland  Cement,  1870-1907. 


YEAR 

AVERAGE 
PRICE 

YEAR 

AVERAGE 
PRICE 

YEAR 

AVERAGE 
PRICE 

1870-1880 

$3  00 

1892 

$2.11 

1900 

$1.09 

1881 

2.50 

1893 

1.91 

1901 

0.99 

1882 

2.01 

1894 

1.73 

1902 

1.21 

1883 

2.15 

1895 

1.60 

1903 

1.24 

1884 

2.10 

1896 

1.57 

1904      .    . 

0.88 

1885-1888 

1.95 

1897 

1.61 

1905      .    . 

0.96 

1889 

1.67 

1898 

1.62 

1906      .    . 

1.13 

1890 

2.09 

1899      . 

1.43' 

1907  .   .   . 

1.11 

1891 

2.13 

In  the  following  diagram,  Fig.  2,  the  fall  in  cement 
prices  during  the  period  1880-1907  is  shown  graphically.  On 
a  following  page,  in  discussing  the  future  of  the  industry,  some 
comment  will  be  made  on  the  industrial  and  financial  meaning  of 
this  marked  decline  in  prices. 


GROWTH    AMERICAN    CEMENT    INDUSTRY 


$2.80 
$2.60 

<2  41) 

I 

\ 

\ 

\ 

-) 

1 

1 

\ 

1 

\ 

|  $2.00 

5 

5  $1.80 
D 
CD 

^  $1.60 

UJ 
DC 
K 

\ 

<>, 

^^ 

V 

/ 

k 

•^ 

1 

/ 

\ 

\ 

jj 

\ 

\ 

/ 

/ 

\ 

^ 

\ 

/ 

\ 

\ 

\ 

\ 

/ 

\ 

^L 

\ 

• 

% 

X 

^~ 

v.4 

^ 

\ 

\ 

\ 

^ 

S  "*•*' 

o: 
U 

!^<n.2o 

u 

o 

DC 

Q-  iti  oo 

\ 

l 

\ 

V 

\ 

^ 

, 

\ 

t 

\ 

/ 

/ 

\ 

/ 

\ 

\ 

/ 

\ 

f 

\ 

/ 

.80 

\ 

j 

^ 

/ 

O    »—     <N     ro     ^ 
co   CD    oo    oo    a 

r     m'or^oooO'—    tNn^j-     m<or^coai     o    •—    «N     roTfm<or-oo 
30OeOCOOOOOOlO>O»O»O>      O»O\O»O»O»OOOOOOOOO 

O>      Ol 

Fig. 2. THE  COURSE  OF  CEMENT  PRICES,  1880-1907. 


CHAPTER 
HI 

THE  OUTLOOK  FOR  THE  FUTURE 

THOSE  who  are  engaged  in  the  active  management 
of  an  industrial  enterprise  may  be  content,  and  fre- 
quently are,  with  securing  a  thorough  acquaintance  with 
the  present  status  of  the  industry  in  which  they  are  in- 
terested. Those  engaged  in  financing  such  enterprises, 
however,  are  confronted  by  a  different  problem.  To  the 
banker  or  investor,  an  intimate  acquaintance  with  the 
present  details  of  the  business  is  not  necessary,  or  even 
particularly  desirable ;  but  it  is  imperative  that  he  should 
be  able  to  form  some  idea  of  the  future  possibilities  of 
the  enterprise.  The  difference  between  the  unsuccess- 
ful and  the  successful  financier  is  largely  a  matter  of 
tense ;  the  one  considers  only  what  a  possible  investment 
is  worth  to-day ;  the  other  forecasts  what  it  will  be  worth 
ten,  or  twenty,  or  fifty  years  from  now. 

For  this  reason  it  is  necessary,  in  the  present  con- 
nection, to  attempt  the  difficult  task  of  outlining  the 
probabilities  as  to  the  future  development  of  the  cement 
industry.  The  points  of  greatest  interest  are  con- 
nected with  the  possible  future  growth  in  output;  with 
the  future  course  of  costs  and  of  prices;  and  with  the 
degree  and  method  of  organization  which  the  industry 
is  likely  to  assume. 

THE  FUTURE  GROWTH  OF  THE  CEMENT 
INDUSTRY 

In  attempting  to  gain  some  idea  of  the  possible  future  de- 
velopment of  the  cement  industry,  so  far  as  active  output  is 
concerned,  recourse  must  be  had  to  comparative  studies,  for  of 
course  direct  evidence  is  not  available.  We  have  at  hand  all 

27 


THE    PORTLAND    CEMENT    INDUSTRY 

the  necessary  facts  concerning  the  past  growth  of  the  cement  in- 
dustry, and  to  some  small  extent  the  past  rate  of  growth  may 
aid  in  making  an  estimate  as  to  future  possibilities.  But,  in  the 
writer's  opinion,  a  much  more  profitable  line  of  inquiry  lies  in 
the  study  of  the  history  of  closely  related  industries — those  con- 
nected, for  example,  with  the  production  of  similar  staple  pro- 
ducts, such  as  coal,  pig-iron,  copper  or  oil.  The  experience 
gained  by  producers  of  these  materials  may  be  of  service  to  the 
younger  industry. 

For  many  reasons  the  manufacture  of  pig-iron  affords  a 
close  trade-parallel  to  that  of  cement.  Both  products  are  cheap, 
bulky,  dependent  on  fuel  supplies  and  freights.  Both  require 
heavy  fixed  investment  in  plant,  as  compared  with  the  value  of 
the  output.  Both  products  are  used  extensively  in  a  way  which 
keeps  them  in  close  sympathy  with  general  business  conditions; 
and  both  products  are,  in  this  country,  used  at  a  per  capita  rate 
which  is  still  increasing  on  the  average. 

In  Figure  3  the  growth  of  the  iron  and  cement  industries  is 
compared  graphically  for  the  period  1890-1907.  The  diagram 
is,  of  course,  distorted  to  the  extent  that,  while  the  pig-iron  pro- 
duction is  given  in  tons  of  2,240  pounds,  the  cement  output  is 
stated  in  barrels  of  380  pounds.  But  this  distortion  does  not 
affect  the  value  of  the  diagram,  when  used  simply  as  a  means  of 
readily  comparing  the  growth-curves  of  the  two  industries. 

On  examination  it  will  be  seen  that  the  cement  output  has 
shown  an  actual  increase  each  year  to  date,  so  that  on  the  dia- 
gram its  curve  rises  steadily  and,  until  1907,  at  an  increasing 
ratio  each  year,  showing  no  downward  flexures  or  relapses.  This 
is  the  normal  form  for  the  growth-curve  of  a  young  and  rapidly 
expanding  industry,  which  has  not  yet  reached  the  point  where 
its  annual  output  is  affected  by  financial  conditions.  The  iron 
curve,  on  the  other  hand,  though  showing  a  decided  gain  for  the 
period  covered,  also  shows  at  intervals  depression  flexures,  typi- 
cal of  a  mature  industry,  whose  annual  output  must  depend  on 
the  general  financial  and  industrial  condition  of  the  country. 
It  may  reasonably  be  expected  that  hereafter  the  cement  and  iron 
curves  will  approximate  in  form. 

2S 


46,000,000 


40,000,000 


35,000,000 


30,000,000 


25,000,000 


80,000,000 


15,000,000 


10,000,000 


5,000,000 


o»  o» 


PIG  IRON,    LONG  TONS,          — —  PORTLAND  CEMENT,     BARRELS 

Fig.  3.    COMPARISON  OF  PORTLAND  CEMENT  AMD  PIG-IRON 
PRODUCTION,  1890-1907. 


THE    PORTLAND    CEMENT    INDUSTRY 

Up  to  1907,  the  American  cement  industry  had  shown  a 
practically  uninterrupted  progress  so  far  as  annual  output  was 
concerned,  and  many  manufacturers  seemed  to  expect  that  this 
pleasant  condition  could  continue  indefinitely.  The  number  of 
plants  under  construction  or  in  course  of  promotion  increased 
rapidly,  and  heavy  increases  in  productive  capacity  were  indi- 
cated. 

In  January,  1907,  in  discussing*  conditions  in  the  cement 
industry  of  1906,  the  present  writer  took  occasion  to  call  at- 
tention to  an  impending  change  in  these  conditions.  The  state- 
ment then  made  was  as  follows: 

The  cement  output,  as  yet,  has  not  suffered  markedly  from 
financial  depressions.  Prices  have  fallen  off  in  poor  years,  it  is 
true,  but  the  annual  output  has  always  increased.  The  rise  in 
yearly  output  from  1885  to  1906  has  not  only  been  continuous,  but 
has  even  shown  a  tendency  to  increase  its  rate  of  increase.  Of 
course  such  a  condition  of  the  industry  cannot  be  expected  to  con- 
tinue indefinitely.  Within  a  few  years  we  must  expect  to  see  the 
rate  of  increase  lowered,  and  finally,  in  some  period  of  business 
depression,  some  year  will  show  a  lower  output  than  the  preceding 
year.  This  will  mark  the  end  of  the  youth  of  the  cement  industry, 
and  the  beginning  of  its  period  of  maturity.  Though  the  present 
condition  of  the  industry  is  as  prosperous  as  might  be  desired,  it  is 
possible  that  the  change  in  rate  of  growth  may  be  quite  near  at 
hand.  New  construction  in  1906,  and  plans  for  1907,  will  provide 
a  great  increase  in  mill  capacity.  If  the  succeeding  years  are  gen- 
erally good,  this  increase  will  be  taken  up  without  difficulty;  but  a 
general  financial  depression  in  1908  would  probably  result  in  a 
temporary  check  to  the  cement  industry.  So  far  as  can  be  estimated 
now,  the  plants  which  will  be  in  operation  before  the  end  of  1907 
will  turn  out  cement  at  the  rate  of  50,000,000  barrels  per  annum, 
and  it  is  doubtful  whether  such  an  output  could  be  absorbed  if  the 
United  States  were  not  generally  prosperous. 

When  this  statement  was  published,  several  cement-trade 
journals  commented  on  it  in  interesting  fashion.  As  one  editor 
noted,  "The  absurdity  of  such  a  gloomy  prophecy,  at  a  time 
like  this,  is  obvious  to  anyone  acquainted  with  the  true  condi- 
tion of  the  cement  business.  The  rush  for  cement  never  was 

*  Engineering  Magazine,  January,  1907. 

30 


OUTLOOK  FOR  THE  FUTURE 

greater  than  it  is  now.     All  mills  are  working  to  full  capacity 
and  the  managers  only  wish  that  they  were  bigger." 

Later  in  1907  the  humor  of  the  situation  did  not  seem  quite 
so  obvious,  and  now,  near  the  close  of  1908,  it  seems  fairly  safe 
to  say  that  the  American  cement  industry  reached  a  distinct 
turning  point  in  the  latter  part  of  1907,  and  that  from  now  on 
the  matter  of  output  must  be  handled  differently.  Hereafter 
we  may  expect  that  the  cement  production  will  be  related  very 
closely  to  general  business  conditions ;  that  in  times  of  prosperity 
we  may  temporarily  fall  behind  in  capacity;  but  that  the  ap- 
proach of  business  depression  will  be  marked  either  by  radical 
decrease  in  cement  output  or  by  its  alternative — which  is  gen- 
eral demoralization  in  the  trade.  The  cement  industry  has  no 
longer  room  for  poorly  managed  plants,  or  for  weakly  financed 
companies,  for  in  times  of  industrial  stress  such  plants  and  com- 
panies become  a  menace  to  the  entire  industry. 

POSSIBLE  DECREASES  IN  OPERATING  COSTS 

The  costs  of  Portland  Cement  manufacture  are,  of  course, 
greatly  lower  than  during  the  early  history  of  the  industry. 
Part  of  this  decrease  is,  of  course,  easily  understood,  being 
merely  the  gain  shown  in  any  well-conducted  industrv  as  its 
machines  and  men  get  gradually  fitted  to  their  work.  But  this 
regular  economy,  which  is  not  progressive,  but  shows  most  in 
the  first  years,  is  not  the  explanation  of  the  bulk  of  the  cost  re- 
duction which  has  been  affected  in  cement  manufacture.  The 
great  decreases  came  in  three  abrupt  steps,  coincident  with  radi- 
cal changes  in  the  methods  of  manufacture. 

In  1885  an  American  Portland  Cement  plant  would  have 
shown  costs  somewhat  larger  than  an  English  plant,  due  to  the 
heavier  American  labor  cost,  which  was  not  entirely  compensated 
for  by  cheaper  fuel.  The  general  adoption  of  the  rotary  kiln 
changed  this  relation,  and  was  the  cause  of  sharp  reductions 
in  manufacturing  costs.  A  second  fall  in  costs  was  noticeable 
when  powdered  coal  became  the  standard  fuel  in  the  rotary. 
The  last  progressive  step  in  the  industry — the  adoption  of  long 

31 


THE    PORTLAND    CEMENT    INDUSTRY 

kilns — was  taken  at  a  time  when  coal  and  labor  were  becoming 
more  expensive,  and  so  far  has  shown  a  gain  in  output  with  but 
little  saving  in  cost. 

So  long  as  there  are  no  absolutely  revolutionary  changes  in 
our  present  methods  of  cement  manufacture,  no  marked  decreases 
in  operating  costs  can  be  expected.  Improvements  in  grinding 
machinery  can  offer  little  in  the  way  of  cost  reduction  so  long 
as  the  total  amount  of  grinding  to  be  done  remains  the  same. 
The  main  elements  in  the  problem  are  unfortunately  fairly  well 
determined  by  nature.  To  make  400  pounds  of  cement  we  must 
burn  about  200  pounds  of  coal,  and  pulverize  almost  1,100 
pounds  of  material — raw  mix,  clinker  and  kiln  coal.  As  coal 
can  hardly  be  expected  to  decrease  in  price  in  the  future,  and 
as  the  other  elements  of  cost  are  practically  unchangeable,  there 
is  little  room  left  for  further  economies.  It  seems  safe  to  say 
that  the  manufacturing  costs  at  well-conducted  plants  reached 
in  1904,  1905  and  1908  low  levels,  which  can  hardly  be  lowered 
in  the  near  future.  Until  very  radical  changes  in  cement  manu- 
facture take  place,  further  important  decreases  in  manufacturing 
costs  can  hardly  be  expected. 

THE  FUTURE  COURSE  OF  PRICES 

The  Portland  Cement  Industry  is  now  an  industry  character- 
ized by  moderate  and  decreasing  returns  to  the  investor.  This 
condition  is  caused  by  the  fact  that  while  free  competition  is 
slowly  but  steadily  pushing  downward  the  selling  prices  of  the 
product,  manufacturing  costs  on  the  other  hand  are  almost 
stationary.  On  a  preceding  page  some  attention  was  paid  to 
the  possibility  of  future  radical  decreases  in  costs.  At  present 
it  will  be  more  profitable  to  consider  how  far  it  is  possible  to 
regulate  prices. 

It  will  first  be  necessary  to  revert  for  a  moment  to  the  sta- 
tistical data  presented  in  Chapter  II  and  to  see  what  light  the 
past  history  of  unregulated  prices  may  throw  upon  the  future 
possibilities  in  this  line.  The  first  thing  of  note  is  the  extent 
of  the  price-decline,  for  we  see  that  cement  has  fallen  during 

32 


OUTLOOK  FOR  THE  FUTURE 

less  than  thirty  years  from  a  maximum  of  over  three  dollars  per 
barrel  to  a  minimum  of  considerably  less  than  one  dollar.  In 
American  industrial  history  the  fall  in  prices  most  nearly  com- 
parable to  this  is  that  shown  by  steel  rails  from  1867  to  1898, 
when  an  almost  unchecked  decline  was  witnessed  from  $166  to 


1867 
1870 

1875 
1880 

1885 


PRICES  OF  STEEL  RAILS  PER  TON,  PfTTSBORGi 

*  5  I  * 

O  or  o 


1895 


m  1907 
n 


1880 


§  1885 


o1890 
rn 

5   1895 


1900 


1905 
1907 


p  p  p 

8  £  Ib 


PRICES  OF  CEMENT  PER  BARREL,  IN  BULK  AT  MILL. 

«.  ^  «>=  «k 

r*       r-1  **       i* 

§       S  8 S 


33 


THE    PORTLAND    CEMENT    INDUSTRY 

$18  per  ton.  The  two  sets  of  results  are  shown  diagrammatic- 
ally  in  Fig.  4,  and  will  repay  study.  The  price-history  embodied 
in  the  steel-rail  diagram  shows  clearly  that  in  these  days  of 
large-scale  production  prices  will  at  intervals  plunge  below  the 
level  of  actual  manufacturing  cost,  and  that  no  natural  agencies 
can  be  relied  on  to  prevent  these  periodic  disasters.  The  dia- 
gram also  shows  the  result  of  spasmodic  efforts  at  price  regula- 
tion, which  finally  became  effective  in  1901.  There  is  no  reason 
to  believe  that  cement  prices,  unassisted,  will  show  any  greater 
resistance  to  downward  pressure  than  did  those  of  steel  rails 
during  their  long  decline. 

On  examining  more  closely  the  table  of  annual  cement  prices 
or,  better,  the  diagram  on  page  33  it  will  be  seen  that  the  de- 
cline has  not  been  steady,  but  that  the  price-history  of  the 
American  Portland  Cement  industry  can  be  divided  into  four 
periods.  In  each  of  these  periods  price  movements  were  fairly 
close  around  an  average.  In  each  case  the  average  seemed  low 
enough,  looking  backward  at  periods  of  higher  prices;  but  in 
each  case  the  next  period  showed  a  still  lower  range  of  prices. 
The  matter  is  summarized  in  the  following  table : 


PERIOD 

DURATION 

AVERAGE  PRICE 

1874—1880 
1881—1894 
1895—1899 
1900—1907 

7  years 
14  years 
5  years 
8  years 

$3.00 
2.01 
1.56 
1.07 

In  considering  these  figures,  it  must  be  borne  in  mind  that 
they  are  averages  for  the  entire  United  States,  and  that  the  aver- 
age prices  secured  by  Eastern  mills  will  usually  range  from  ten 
to  fifteen  cents  per  barrel  lowrer  than  the  average  for  the  whole 
country. 

The  lowest  average  price  for  the  United  States  was  reached 
in  1904,  when  88  cents  per  barrel  was  received.  If  the  crisis 
of  1907-8  had  been  of  greater  intensity,  or  even  if  it  proves 
to  be  of  greater  duration  than  now  seems  probable,  there  is 
little  doubt  that  a  new  low  average  would  be  recorded. 

34 


OUTLOOK  FOR  THE  FUTURE 


POSSIBLE  PRICE  REGULATION 

The  necessity  for  some  reasonable  degree  of  price  regulation 
in  the  cement  industry  would,  in  view  of  these  facts,  seem  to  be 
obvious  enough.  It  must  not  be  overlooked  that  this  condition 
is  not  peculiar  to  this  particular  industry,  but  that  it  exists 
everywhere  in  modern  production.  In  a  recent  study  of  the 
trust  movement  in  British  industry,  McCrosty  has  summarized 
strikingly  the  underlying  conditions,  under  a  regime  of  unre- 
stricted competition,  which  inevitably  tend  to  bring  about  some 
degree  of  combination  or  unified  control  in  all  modern  manu- 
facturing industries.  His  words  are  so  clearly  applicable  to 
the  present  condition  of  the  American  Cement  Industry  that  it 
seems  justifiable  to  quote  them  at  length: 

With  every  improvement  in  transport  the  market  becomes  wider 
and  competition  becomes  keener  through  the  advent  of  new  pro- 
ducers, while  at  the  same  time  it  becomes  more  difficult  to  make 
rational  forecasts  of  the  course  of  trade.  Even  within  tariff  walls 
competition  always  rages  as  soon  as  it  is  discovered  that  there  are 
certain  industries  to  which  the  law  has  assigned  the  possibility  of 
greater  profits  than  the  average.  Alike  in  protected  and  unpro- 
tected markets  free  competition  becomes  cut-throat,  prices  fall,  and 
over-production  ensues  in  the  wild  efforts  of  producers  to  reduce 
costs  by  a  larger  output.  .  .  .  One  might  say  that  the  normal 
course  of  modern  trade  was  that  prices  should  always  tend 
toward  the  cost  of  production,  that  this  tendency  developed  itself 
with  increasing  speed,  and  from  time  to  time  ended  in  production 
at  a  loss.  Now  whatever  one  may  say  about  a  "social  contract,"  or 
the  working  out  of  the  welfare  of  society  through  the  clashing  self- 
interest  of  individuals,  the  fact  remains  that  the  first  object  with 
which  a  man  enters  business  is  to  make  money,  and  his  second  to 
make  as  much  as  he  can.  Similarly  a  workman  wants  first  to  get 
a  subsistence  wage,  and  next  as  high  a  wage  as  he  can.  And  if 
any  social  institutions  or  trade  methods  stand  in  the  way  there  will 
be  a  revolt.  Such  a  revolt  in  a  multitude  of  forms  we  are  now 
witnessing 

The  simplest  form  of  price  regulator  is,  of  course,  the  pool. 
At  present,  however,  pools  are  without  legal  protection,  and 
sad  experience  in  both  railroad  and  iron  affairs  has  shown  that 

35 


THE    PORTLAND    CEMENT    INDUSTRY 

the  so-called  "gentlemen's  agreement"  has  a  short  life,  failing 
to  develop  either  agreement  or  gentlemen.  It  is  of  course  pos- 
sible that  the  Sherman  law  may  be  so  modified,  or  so  re-inter- 
preted, as  to  afford  legal  remedies  for  broken  price  agreements, 
but  as  things  are  now  no  form  of  pool  can  be  considered  durable. 
The  inherent  difficulty  arises  from  the  fact  that  the  pool  is 
simply  a  temporary  device,  and  that  the  interests  of  the  members 
often  clash.  The  usual  history  of  such  arrangements  has  been 
that  the  pool  was  formed  during  a  period  of  unduly  low  prices, 
when  everybody  was  willing  to  agree  to  anything;  that  prices 
were  advanced  to  remunerative  levels,  and  finally  to  excessive 
levels ;  and  that  as  soon  as  this  caused  a  slackening  in  demand 
price-cutting  became  obvious.  The  ordinary  excuse  for  the 
first  cut  is  the  necessity  for  meeting  a  temporary  intense  local 
competition  by  some  non-member ;  after  the  first,  no  one  has  time 
to  make  excuses. 

During  the  past  thirty  years  the  American  natural  cement 
industry  has  developed  a  number  of  pools,  some  of  very  simple 
type  while  others  had  a  complex  organization  and  considerable 
stability.  In  the  Portland  Cement  Industry  local  price-agree- 
ments are  formed  at  intervals,  but  heretofore  none  of  these  has 
had  any  great  length  of  life. 

It  must  be  borne  in  mind  that,  in  order  to  justify  any  system 
of  price  regulation,  it  must  exercise  control  in  both  directions, 
repressing  excessive  upward  movements  as  well  as  steadying 
prices  during  times  of  depression.  It  can  fairly  be  claimed  that 
this  has  been  accomplished  in  the  steel  trade,  and  the  purchaser 
of  steel  products  is  now  assured  against  wild  fluctuations  in 
prices  either  way.  As  a  matter  of  fact  few  purchasers  of  any 
semi-finished  product  like  cement,  pig  iron  or  steel,  care  much 
whether  prices  are  high  or  low;  they  are  chiefly  interested  in 
knowing  that  they  are  steady  and  open,  so  that  all  competing 
purchasers  will  be  placed  on  a  practically  equal  basis. 

Since  all  of  our  industrial  history  has  established  the  inef- 
fectiveness of  any  possible  form  of  simple  pooling  to  maintain 
prices  of  any  commodity  at  reasonably  profitable  levels,  it  is 
clear  that  some  other  type  of  price  regulation  must  be  expected 

36 


OUTLOOK  FOR  THE  FUTURE 

to  appear  in  the  cement  industry.  At  present  it  is  difficult  to  say 
just  what  form  the  final  regulating  process  will  take,  for  the 
Portland  Cement  Industry  of  this  country  affords  a  peculiarly 
interesting  example  of  an  important  and  growing  branch  of 
manufacture  whose  future  organization  and  control  is  still  a 
matter  of  uncertainty.  During  the  past  few  years,  however, 
two  distinct  movements  in  the  trade  have  become  noticeable,  and 
one  or  both  of  these  may  aid  in  the  solution  of  the  problem.  The 
first,  which  is  the  normal  occurrence  in  any  industry  containing 
a  large  number  of  independent  competitive  units,  is  the  gradual 
growth  of  community  of  interest,  which  by  increasing  the  size 
of  some  of  the  units,  or  by  decreasing  their  number,  aids  in  giv- 
ing stability  to  the  market.  The  second  important  movement  is 
towards  a  control  of  the  trade  through  the  ownership  of  patents. 
This  form  of  regulation,  though  not  entirely  new  in  American 
industrial  history,  is  still  much  rarer  than  the  other  type. 


CONCENTRATION  OF  INTEREST  IN  THE  CEMENT 

INDUSTRY 

Ten  or  even  five  years  ago  the  business  of  making  Port- 
land Cement  in  the  United  States  was  confined  to  a  number  of 
comparatively  small  mills,  each  of  which  was  practically  inde- 
pendent. To-day  there  is  a  noticeable  degree  of  concentration 
of  interest  in  the  industry,  and  three  processes  are  at  work  to 
increase  steadily  this  concentration.  Owing  to  the  peculiar 
character  of  the  industry,  the  final  result  is  still  a  matter  of  much 
doubt.  It  is  clearly  impossible  for  any  one  organization  to  gain 
control  of  the  supply  of  raw  materials,  so  that  in  this  industry 
the  most  effective  basis  for  monopoly  is  not  available.  The 
ownership  of  comprehensive  basic  patents  would,  as  noted  later, 
afford  a  peculiarly  serviceable  type  of  control,  inasmuch  as 
patent  monopolies  are  thoroughly  legal  in  form. 

Setting  aside  for  the  moment  the  possibility  of  monopoly,  it 
can  be  said  that  the  three  factors  which  make  for  concentration 
of  control  are — 

37 


THE    PORTLAND    CEMENT    INDUSTRY 

1.  The  normal  growth  of  profitable  plants. 

2.  Consolidation  by  stock  control. 

3.  The  growth  of  the  patent-holding  company. 

A  well-located  and  well-managed  plant  always  has  opportunity 
for  expansion  which  is  denied  to  plants  of  less  technical  or  finan- 
cial soundness.  Many  plants  in  this  country  have  had  oppor- 
tunities for  growth,  and  some  have  seized  these  opportunities. 
Plants  which  are  built  or  extended  at  the  height  of  a  boom  period, 
and  companies  which  pay  out  all  the  profits  of  prosperous  years 
as  dividends  can  hardly  expect  to  share  in  this  growth.  For  in 
by  far  the  majority  of  instances,  lack  of  growth  in  a  cement 
plant  has  been  due,  not  to  defective  raw  materials  or  to  lack  of 
technical  skill,  but  to  unwise  financial  management  either  at  the 
inception  or  during  the  active  life  of  the  company. 

Several  strong  groups  of  plants  connected  by  stock  control 
rather  than  by  direct  ownership  are  now  in  existence.  Of  these 
the  most  important  is  the  lola  or  Nicholson  group,  which  con- 
trols seven  plants,  mostly  in  the  Kansas  district.  A  second  im- 
portant group  is  that  controlled  by  Mr.  W.  J.  Dingee  and  his 
associates,  including  plants  in  California,  Washington,  and  Penn- 
sylvania. The  Cowham  series  of  plants  located  in  Michigan, 
Iowa,  Kansas,  and  Texas  also  requires  notice  in  this  connection, 
and  a  number  of  smaller  examples  of  "community  of  interest" 
are  known  to  exist. 


THE  INFLUENCE  OF  PATENTS  ON  THE  CEMENT 
INDUSTRY 

The  Portland  Cement  Industry,  in  its  present  form,  is  a 
comparatively  recent  development  and  owes  much  of  its  mechani- 
cal perfection  to  the  efforts  of  American  inventors.  As  a  result 
of  its  recent  origin,  cement  machinery  and  cement-making  pro- 
cesses have  been  the  subjects  of  innumerable  patents,  while  older 
industries  are  more  nearly  free  from  comprehensive  claims. 
While  many  mechanical  details  are  of  course  covered  by  minor 
patents,  those  claims  which  are  likely  to  have  any  serious  effect 

38 


OUTLOOK  FOR  THE  FUTURE 

on  the  future  of  the  industry  may  for  convenience  be  grouped 
as  follows : 

1.  Patents  relating  to  specialized  types  of  grinding  machinery. 
Patents  of  this  type  are  numerous,  and  many  are  sound  and  valu- 
able.    Their  only  effect,  however,  is  to  slightly  increase  the  cost 
of  such  machinery;  and  as  the  best  representatives  of  the  various 
classes   of  grinders   are   fairly  well-matched   in   efficiency,  the   net 
result  on  the  industry  is  small. 

2.  Patents  relating  to  the  burning  process.     This  group  includes 
many    and    important    claims    covering    kiln    details,    fuel   burning 
methods,  etc.     Some  of  these  patents  have,  as  noted  below,  exercised 
an  important  influence  on  the  industry,  and  may  become  of  still 
greater  importance. 

3.  Patents  on  special  products.     Many  patents  have  been  issued 
covering  cements  differing  more  or  less  from  the  normal  Portland 
type.     Typical   cases,   for   example,  are   the  high-iron  marine   ce- 
ments, the  low-iron  white  cements,  the  high-magnesia  cements,  etc. 
Though  valuable  for  certain  uses,  few  of  these  special  cements  can 
be  expected  to   exercise  any   appreciable  influence  on  the   general 
Portland  Cement  Industry.     Their  unimportance  in  this  respect  is 
largely  due  to  the  fact  that  most  of  them  are  more  expensive  to 
manufacture  than  an  ordinary  Portland.     If  it  should  develop,  how- 
ever, that  some  one  of  these  special  products  could  be  made  more 
cheaply  than  a  normal  Portland,  the  case  would  be  very  different. 

4.  Patents  covering  by-products.     Claims   for  the  recovery  of 
valuable  by-products,  notably  sulphur  and  the  alkalies,  are  numer- 
ous; but  so  far  none  of  these  processes  has  proven  to  be  of  much 
practical  importance. 


THE  GROWTH  OF  THE  PATENT-HOLDING  COMPANY 

Numerous  patents  have  been  taken  out  in  connection  with 
various  phases  of  the  cement  industry,  but  it  is  only  within  the 
last  two  years  that  the  patent  question  has  become  of  the  first 
importance  to  the  cement  industry.  This  recent  development  is 
due  to  the  organization  and  growth  of  a  great  patent-holding 
corporation. 

Late  in  1906  the  North  American  Portland  Cement  Company 
was  organized,  with  a  capital  stock  of  $10,000,000,  this  stock 
being  held  by  the  Atlas,  Alpha,  American,  Lawrence,  Lehigh, 

39 


THE    PORTLAND    CEMENT    INDUSTRY 

and  Vulcanite  cement  companies.  The  North  American  Com- 
pany took  over  from  the  Atlas  Portland  Cement  Company  the 
United  States  rights  to  the  Hurry  and  the  Seaman  patents,  which 
cover  certain  methods  for  the  burning  of  pulverized  coal  in 
cement  kilns.  At  a  later  date  it  acquired  the  Edison  long-kiln 
and  the  Carpenter  patents.  The  companies  now  licensed  under 
this  system  include  the  six  companies  which  control  the  North 
American  and  also  the  Whitehall,  Northampton,  Dexter,  Edison, 
Nazareth,  Pennsylvania,  Penn-Allen,  Catskill,  Buckhorn, 
Phoenix,  Bath,  and  Glens  Falls  Portland  Cement  companies.  In 
January,  1907,  these  licensed  companies  organized  as  the  Asso- 
ciation of  Licensed  Cement  Manufacturers.  The  following  ma- 
terial is  quoted  from  a  statement  then  issued: 

The  purposes  of  the  association  include  the  general  betterment 
of  the  mechanical  and  chemical  processes  used  in  making  cement, 
the  improvement  of  the  quality  of  cement,  dealing  with  matters  of 
traffic  and  shipment  and  the  establishment  of  an  association  labora- 
tory for  technical  tests  and  experiments.  It  is  understood  that  all 
existing  and  properly  equipped  cement  plants  will  be  granted 
licenses  and  admitted  to  membership.  Infringers  of  the  patents 
above  referred  to  will  be  rigorously  prosecuted. 

Nearly  70  per  cent,  of  the  output  of  the  Portland  Cement  indus- 
try in  this  country  is  already  represented  by  the  association,  this 
being  double  the  annual  production  in  Great  Britain,  the  pioneer 
Portland  Cement  manufacturing  country,  equal  to  the  combined 
output  of  England  and  France,  and  in  excess  of  that  of  Germany. 

•X--*-**-*-****-** 

The  Association  of  Licensed  Cement  Manufacturers,  with  its 
facilities  for  tests  and  experiments,  its  investigation  of  mechanical 
and  chemical  problems,  its  establishment  of  standards  of  quality, 
and  its  assistance  in  obtaining  proper  shipping  facilities  and  rates, 
is  expected  to  be  of  great  benefit  to  its  members. 

PRESENT  STATUS  OF  CONCENTRATION  IN  THE 
INDUSTRY 

The  facts  discussed  in  preceding  paragraphs  may  be  sum- 
marized as  in  the  schedule  below,  which  is  an  attempt  to  indicate 
the  groupings  at  present  existing  in  the  domestic  Portland  Ce- 
ment industry.  This  table  is  based  on  information  supplied  by 

40 


OUTLOOK  FOR  THE  FUTURE 

those  in  control  of  most  of  the  plants  mentioned,  and  is  believed 
to  be  substantially  free  from  error. 

Present  groupings  in  the  Portland  Cement  Industry  in  the   United  States 

NAMES   OF    COMPANIES  LOCATION    OF    PLANTS 

1.  NORTH    AMERICAN    PORTLAND    CEMENT    COMPANY: 

Alpha   Portland    Cement   Company Alpha,      N. J. ;      Martins 

Creek,  Pa. 
Martins  Creek  Portland  Cement  Company  Martins  Creek,  Pa. 

American    Cement    Company Egypt,  Pa. 

Central  Cement  Company Egypt,  Pa. 

Reliance  Cement  Company Egypt,  Pa. 

Tidewater    Cement    Company Norfolk,  Va.o 

Atlas  Portland  Cement  Company Northampton,  Pa.;  Han- 
nibal, Mo. 

Lawrence  Cement  Company Siegfried,  Pa. 

Lehigh  Portland  Cement  Company Ormrod,    Pa.;    Wellston, 

Ohio;     Mitchell,     Ind. 

Shenango  Portland  Cement  Company. . . .    Newcastle,  Pa. 
Vulcanite  Portland  Cement  Company Vulcanite,  N.J. 

2.  NICHOLSON  or  IOLA  GROUP: 

Tola  Portland  Cement  Company lola,  Kan. 

United  Kansas  Portland  Cement  Company: 

Kansas  Portland  Cement  Company lola,  Kan. 

Independence  Portland  Cement  Company  Independence,  Kan. 

Indian  Portland  Cement  Company Neodesha,  Kan. 

Dixie  Portland  Cement  Company Copenhagen,  Tenn. 

Iowa  Portland  Cement  Company Des  Moines,  lowa.o 

Texas  Portland  Cement  Company Dallas,  Tex. 

3.  UNITED  STATES  STEEL  CORPORATION  :  r     •     •  '-^'$81 

Universal  Portland  Cement  Company Chicago,   111. ;   Buffington, 

4.  D,NGEE  OEOUP:  Ind-  ™**™*  *"• 

Standard  Portland  Cement  Company Napa  Junction,  Cal. 

Santa  Cruz  Portland  Cement  Company. . . .  Santa  Cruz,  Cal. 

Northwestern  Portland  Cement  Company . .  Kendall,  Wash.o 

Atlantic  Portland  Cement  Company Stockertown,  Pa.a 

Northampton  Portland  Cement  Company..  Stockertown,  Pa. 

Quaker  Portland  Cement  Company Sandts  Eddy,  Pa.o 

5.  COWHAM  GROUP: 

Peninsular  Portland  Cement  Company Cement  City,  Mich. 

Southwestern  States  Portland  Cement  Com-  Dallas,  Tex.o 
pany    

Western  States  Portland  Cement  Company.    Independence,  Kan. 

Northwestern  States  Portland  Cement  Com- 
pany        Mason  City,  lowa.a 

6.  SANDUSKY  PORTLAND  CEMENT  COMPANY Bay  Bridge,  Ohio;  Dixon, 

111. ;     Syracuse,     Ind. ; 

7.  CEMENT   SECURITIES  COMPANY:  York,  Pa. 

Portland  Cement  Company  of  Colorado Florence,  Colo. 

Portland  Cement  Company  of  Utah Salt  Lake,  Utah. 

Union  Portland  Cement  Company Devil's  Slide,  Utah. 

a  Plants  thus  designated  are  not  yet  in  operation. 
41 


THE    PORTLAND    CEMENT    INDUSTRY 

The  table  above  does  not  include  all  the  Portland  Cement 
companies  of  the  United  States,  but  simply  those  which  have 
shown  some  degree  of  concentration  of  interest,  or  of  growth 
in  several  localities.  The  Steel  Corporation  and  Sandusky  Port- 
land Cement  Co.  are  included  for  this  latter  reason,  for  while 
they  are  single  companies,  so  far  as  organization  is  concerned, 
each  of  them  has  in  operation  a  number  of  widely  separated 
plants. 

IMPROVEMENTS  IN  MARKETING  CONDITIONS 

Regardless  of  what  may  be  effected  along  the  line  of  price 
regulation,  it  is  probable  that  marketing  conditions  will,  in  the 
near  future,  be  improved  in  some  respects.  Among  the  points 
to  which  attention  may  be  directed  in  this  field  are  the  elimina- 
tion of  the  "optional  contract,"  the  development  of  a  warrant 
system,  and  the  establishment  of  fixed  basing  points  for  quota- 
tions. The  first  of  these  appears  to  be  a  necessity,  while  the 
other  two  are  at  least  open  to  discussion  as  to  their  worth  in  the 
cement  trade. 

Since  its  commencement  in  this  country  the  Portland  Cement 
Industry  has  suffered,  in  common  with  all  other  lines  of  manu- 
facture dealing  with  basic  staples  under  a  highly  competitive 
regime,  from  a  lax  regard  for  contract  obligations  by  pur- 
chasers. A  buyer,  placing  a  future  order  for  cement  or  iron, 
felt  apparently  no  obligation  to  take  the  product  if  the  market 
price  fell  in  the  meanwhile.  A  contract  was  treated  precisely  as 
if  it  had  been  a  free  option,  to  be  called  only  if  prices  advanced. 
The  worst  feature  of  the  situation  was  that,  even  when  a  buyer 
had  cancelled  such  a  "contract"  because  prices  went  against  him, 
he  felt  perfectly  assured  that  the  lapse  would  not  be  remembered 
when  he  next  wished  to  make  a  similar  "contract,"  for  the  pres- 
sure of  competition  prevented  too  close  scrutiny  of  a  purchaser's 
record  in  this  line.  It  is  a  fair  assumption  that  the  first  result 
of  increasing  concentration  of  control  in  the  cement  industry  will 
be  to  eliminate  this  abuse,  as  has  been  done  in  other  lines. 


42 


OUTLOOK  FOR  THE  FUTURE 

THE  DEVELOPMENT  OF  THE  EXPORT  TRADE 

Ten  years  ago,  when  the  American  market  was  capable  of 
absorbing  all  of  the  domestic  cement  output,  even  during  times 
of  general  business  depression,  the  export  trade  received  scant 
attention,  and  deserved  little.  To-day,  when  depression  means 
complete  shutdown  to  many  cement  mills,  the  situation  is  very 
different,  and  a  marked  effort  to  develop  foreign  trade  may  be 
expected. 

The  countries  to  the  south  of  the  United  States  are,  in  gen- 
eral, scantily  supplied  with  fuel,  and  few  of  the  existing  Span- 
ish American  coal-fields  are  well  located  with  regard  to  trans- 
portation routes  and  markets.  For  this  reason  alone,  these  areas 
offer  a  very  favorable  field  for  cement  exports  from  the  United 
States,  and  as  their  development  progresses  this  field  may  be  ex- 
pected to  expand  rather  than  to  contract. 

While  a  competitive  export  trade  is  not  of  itself  as  profitable 
as  a  home  market,  it  affords  a  valuable  balance-wheel  to  domes- 
tic trade-conditions.  Under  modern  conditions,  there  is  always 
surplus  capacity  in  the  manufacture  of  staples.  With  depres- 
sion at  home,  the  surplus  becomes  disastrous,  unless  there  is  some 
way  of  disposing  of  it  elsewhere,  at  or  under  cost  if  need  be. 

SUMMARY  OF  FUTURE  PROSPECTS 

So  much  of  detail  has  necessarily  been  introduced  into  the 
preceding  discussion  of  the  future  prospects  of  the  cement  in- 
dustry that  it  may  be  well  to  close  the  discussion  with  a  brief 
summary  covering  the  more  important  points  that  have  been 
brought  out. 

As  regards  actual  annual  output,  we  may  fairly  expect  this 
to  increase  as  population  increases,  and  as  new  uses  are  found 
for  the  product.  But  we  cannot  reasonably  expect  that  this  in- 
crease will,  in  the  future,  be  as  steady  as  it  has  been  in  the  past. 
It  is  far  more  probable  that  the  future  course  of  the  trade  will 
be  marked  by  successive  periods  of  high  and  low  output,  cor- 
responding to  the  condition  of  general  business  at  the  time. 

Prices   will,   if  left  to   absolutely   unrestricted   competition, 

43 


THE    PORTLAND    CEMENT    INDUSTRY 

tend  to  fall  to  a  point  which  yields  a  fair  profit  only  to  the  larg- 
est and  best  mills.  The  future  decrease  in  prices,  however,  can 
not  be  comparable  in  amount  to  that  which  has  already  been 
experienced,  since  manufacturing  costs  show  little  prospect  of 
marked  decrease. 

Under  the  stimulus  of  decreased  profits  for  the  better  mills, 
and  of  actual  losses  for  the  mills  which  are  more  poorly  located 
or  operated,  some  attempt  at  regulation  of  output  and  prices 
may  be  expected.  Such  regulation  may  be  made  effective  through 
simple  pooling,  through  patent  control,  or  through  closer  con- 
solidation, the  two  latter  methods  offering  the  greater  possibili- 
ties in  this  line. 


44 


CHAPTER 
IV 

FACTORS  INFLUENCING  THE  VALUA- 
TION OF  CEMENT  SECURITIES 

THE  Portland  Cement  industry  is  a  manufacture 
based  upon  extremely  complicated  and  delicate 
chemical  and  mechanical  processes,  and  it  would  be  im- 
possible in  this  volume  to  attempt  any  detailed  descrip- 
tion of  the  various  stages  in  the  manufacture  of  the 
product.  It  is  desirable,  however,  to  call  attention  to 
certain  characteristics  of  the  industry  which  are  directly 
connected  with  its  profits  and  with  the  valuation  of  ce- 
ment securities;  and  to  point  out  the  bearing  of  these 
industrial  factors  on  the  financial  side  of  the  matter. 

SUMMARY  OF  CEMENT  MANUFACTURE 

At  the  outset  it  is  well  to  consider  very  briefly  what  sort  of 
a  product  we  are  engaged  in  making  and  selling,  and  to  en- 
deavor to  form  some  general  idea  of  how  it  is  made. 

Portland  Cement  is  an  entirely  artificial  or  manufactured 
product,  made  by  burning  a  finely  ground  artificial  mixture  con- 
sisting essentially  of  lime,  silica,  alumina,  and  iron  oxide,  in  cer- 
tain definite  proportions.  Usually  this  combination  is  made  by 
mixing  limestone  or  marl  with  clay  or  shale,  in  which  case  about 
three  times  as  much  of  the  lime  carbonate  should  be  present  in 
the  mixture  as  of  the  clayey  materials.  The  burning  takes  place 
at  a  high  temperature,  approaching  3,000°  F.,  and  must  there- 
fore be  carried  on  in  kilns  of  special  design  and  lining.  During 
the  burning,  combination  of  the  lime  with  silica,  alumina,  and 
iron  oxide  takes  place.  The  product  of  the  burning  is  a  semi- 
fused  mass  called  clinker,  and  consists  of  silicates,  aluminates, 
and  ferrites  of  lime  in  certain  definite  proportions.  This  clinker 

45 


THE    PORTLAND    CEMENT    INDUSTRY 

must  be  finely  ground.  After  such  grinding,  the  resulting  pow- 
der is  Portland  Cement. 

The  finished  product  is  blue  to  gray  in  color,  has  a  specific 
gravity  of  3  to  3.25,  and  when  mixed  with  water  will  harden  or 
set. 

The  product  must  be  uniform  in  composition  and  quality; 
and  as  the  processes  of  manufacture  involve  certain  chemical 
as  well  as  physical  changes,  four  points  may  be  regarded  as  of 
cardinal  importance  in  making  Portland  Cement.  These  are : 

1.  The   cement  mixture   must  be   of   the   proper   chemical   and 
physical  composition; 

2.  The  raw  materials  of  which  it  is  composed  must  be  finely 
ground  and  intimately  mixed  before  burning; 

3.  The  burning  must  be  conducted  at  the  proper  temperature; 

4.  After  burning  the  resulting  clinker  must  be  finely  ground. 

From  this  summary  it  will  be  seen  that  we  must  deal  first  with 
certain  natural  raw  materials,  and  then  with  certain  mechanical 
and  chemical  processes  which  will  produce  from  the  raw  materials 
a  definite  chemical  product.  The  raw  materials  are  quarried, 
mixed,  ground,  burned  and  reground — and  when  stated  in  this 
general  way  the  manufacture  of  Portland  Cement  can  be  seen  to 
be  a  very  simple  proceeding.  In  practise  it  is  a  little  more  dif- 
ficult. 

THE  ELEMENTS  OF  PLANT  LOCATION 

In  selecting  a  location  for  a  new  cement  plant,  or  in  attempt- 
ing to  put  a  valuation  on  a  location  already  selected,  a  number 
of  distinct  and  to  some  extent  independent  factors  are  involved, 
all  of  which  should  be  given  due  consideration.  The  more  im- 
portant of  these  factors  are : 

1.  Chemical  composition  of  the  raw  materials  available. 

2.  Physical  characters  of  the  raw  materials. 

3.  Amount  of  the  raw  materials  available. 

4.  Location  of  the  proposed  site  with  reference  to  transportation 
routes. 

5.  Location  with  respect  to  fuel  supplies. 

6.  Location  with  respect  to  markets. 

46 


VALUATION  OF  CEMENT  SECURITIES 

7.  Location    with    respect    to    competition,    both    present    and 
potential. 

8.  Location  with  respect  to  labor  supply. 

Ignorance  of  the  respective  importance  of  these  factors  fre- 
quently leads  to  an  overestimate  of  the  value  of  some  particular 
plant  location,  or  to  the  acceptance  of  an  inferior  location  when 
a  better  one  might  readily  be  secured. 

When  a  successful  existing  company  is  looking  out  for  a 
location  for  a  new  mill,  it  will  generally,  warned  by  experience, 
make  sure  of  the  points  covered  in  the  above  schedule.  It  will 
endeavor  to  put  the  mill  where  it  will  pay  the  greatest  returns 
on  the  investment,  as  its  interest  is  in  the  success  of  its  business, 
and  not  in  the  booming  of  any  particular  piece  of  property. 
Even  under  these  conditions,  however,  we  have  had  instances  of 
some  remarkably  bad  new  locations  selected  by  previously  suc- 
cessful companies. 

It  is  when  we  deal  with  "promoted"  plants,  however,  whether 
the  promotion  be  fraudulent  or  simply  foolish,  that  the  most 
striking  instances  of  bad  location  are  found.  This  is  due  to 
the  fact  that  the  promoter  invariably  begins  at  the  wrong  end 
of  the  problem.  Instead  of  selecting  first  the  general  territory 
in  which  he  wishes  to  build  a  plant,  and  then  by  careful  study 
picking  out  the  best  possible  location  in  that  territory,  the  pro- 
moter usually  begins  by  buying  a  piece  of  limestone  land  be- 
cause it  is  cheap,  or  because  it  is  located  in  or  near  a  town  whose 
Board  of  Trade  will  offer  "suitable  inducements  to  new  indus- 
tries," or  because  it  is  near  an  established  and  successful  plant. 
Now,  as  a  matter  of  fact,  these  three  reasons  for  his  selection  of 
a  site  may  be  good  enough  for  the  promoter,  but  it  is  obvious 
that  not  one  of  them  has  the  remotest  possible  bearing  on  the 
earning  power  of  the  plant. 

It  will  be  found  on  examining  the  average  cement  prospectus 
that  it  usually  contains  statistics  regarding  the  past  growth  of 
the  cement  industry,  more  or  less  truthful  statements  concerning 
the  profits  of  cement  manufacture,  a  few  analyses  of  the  raw 
materials  to  be  used  at  the  proposed  plant,  and  attractive  esti- 
mates as  to  earnings  and  dividends.  Little  or  nothing  definite 

47 


THE    PORTLAND    CEMENT    INDUSTRY 

will  be  said  regarding  shipping  facilities,  fuel  costs,  labor  sup- 
ply, markets,  and  competition.  And  yet  these  are  the  important 
things  to  be  considered,  and  until  the  investor  is  assured  that 
the  proposed  location  is  satisfactory  in  these  particulars  he  is 
not  in  a  position  to  judge  as  to  the  value  of  the  securities  offered 
him.  The  following  paragraphs  summarize  the  main  points  on 
which  he  should  secure  accurate  information  before  becoming 
deeply  involved  in  the  proposition. 

Before  going  further  it  is  necessary  to  say  that  in  every  case 
the  burden  of  proof  must  be  on  the  promoter.  We  have  gotten 
past  the  stage  where  new  plants,  dumped  down  at  random  over 
the  United  States,  will  prove  profitable.  In  every  case  the  man 
who  proposes  to  build  a  new  plant  must  be  able  to  give  clear  and 
definite  reasons  why  a  plant  of  a  certain  size  should  be  built  at 
that  particular  location.  If  these  reasons  can  be  given,  then  the 
only  questions  which  remain  relate  to  the  ability  and  honesty  of 
the  management.  If  these  reasons  cannot  be  given,  no  sane  man 
should  consider  risking  his  money  in  a  plant  in  Nebraska,  for 
example,  simply  because  another  plant  in  Pennsylvania  has  made 
money. 

RAW  MATERIALS  AND  THEIR  VALUATION 

Very  erroneous  ideas  appear  to  be  current  concerning  the 
value  of  deposits  of  cement  materials.  It  should  be  clearly  under- 
stood that  in  most  parts  of  the  United  States  excellent  cement 
materials  are  common,  and  that  the  commercial  value  of  unde- 
veloped deposits  of  such  materials  is  necessarily  slight.  In  most 
of  the  Eastern,  Southern,  and  Middle  Western  states  there  is  no 
difficulty  whatever  in  securing  lands  containing  limestones  suit- 
able for  cement  manufacture  at  prices  ranging  from  $5  to  $50 
per  acre,  and  it  is  only  exceptional  circumstances  which  would 
allow  any  cement  deposit  to  be  valued  at  more  than  the  latter 
price.  As  indicated  on  a  previous  page,  the  value  of  the  loca- 
tion depends  less  upon  the  character  of  the  materials  than  upon 
other  factors. 

The  characteristics  of  a  deposit  of  raw  material  necessary  to 

48 


VALUATION  OF  CEMENT  SECURITIES 

justify  the  erection  of  a  Portland  Cement  plant  may  be  briefly 
stated  as  follows : 

1.  The  raw  material  must  be  of  correct  chemical  composition 
for  use  as  a  cement  material. 

2.  Its  physical  character  must  be  such  that  the  operations  of 
quarrying,  drying  and  grinding  can  be  carried  on  at  a  minimum 
cost. 

3.  The  size  of  the  deposit  must  be  great  enough  to  keep  a  large 
plant  supplied  with  material  for  at  least  twenty  years. 

These  characteristics  may  be  now  discussed  at  somewhat 
greater  length.  So  far  as  the  chemical  composition  of  the  raw 
material  is  concerned,  there  is  usually  little  room  for  doubt. 
Good  raw  materials  are  so  common  everywhere  that  few  promot- 
ers offer  a  proposition  distinctly  bad  in  this  respect.  That  is  to 
say,  it  is  usually  possible  to  make  Portland  Cement,  in  some  way, 
at  the  location  which  the  promoter  has  selected.  But  on  the  other 
hand,  it  is  frequently  the  case  that  the  actual  operations  of 
manufacture  develop  defects  in  the  raw  materials — defects 
slight  in  appearance,  and  readily  overlooked  during  a  hasty  pre- 
liminary examination,  but  which  are  sufficient  to  make  the  ce- 
ment either  poor  in  grade  or  unnecessarily  costly  to  manufac- 
ture. A  number  of  recent  Southern  promotions,  for  example, 
contemplate  the  use  of  a  raw  material  whose  high  percentages  of 
alumina  result  in  the  making  of  a  low-grade  cement,  while  its 
moisture  content  makes  operating  costs  high.  In  other  localities 
variable  or  excessive  percentages  of  magnesia  have  developed 
after  operation  has  commenced,  and  similar  chemical  defects 
appear  in  many  propositions. 

In  going  over  a  report  or  prospectus  dealing  with  this  phase 
of  the  subject,  the  following  points  may  profitably  be  borne  in 
mind. 

The  material,  if  a  limestone,  must  contain  as  small  a  per- 
centage as  possible  of  magnesium  carbonate.  Under  present  con- 
ditions 5  or  6  per  cent  of  magnesium  carbonate  is  the  maximum 
permissible.  Free  silica,  in  the  form  of  chert,  flint,  or  sand  must 
be  absent,  or  present  only  in  small  quantities,  say  1  per  cent  or 
less.  If  the  limestone  is  a  clayey  limestone  or  "cement  rock,"  the 

49 


THE    PORTLAND    CEMENT    INDUSTRY 


proportion  between  its  silica  and  its  alumina  and  iron  should  fall 
within  the  limits. 


SiO2 


Al2O3+Fe2O3 


2.      and 


Si02 


Al2O3+Fe2O3 


3.5 


A  clay  or  shale  should  satisfy  the  above  equation  and  should 
be  free  from  sand,  gravel,  etc.  Alkalies  and  sulphates  should, 
if  present,  not  exceed  3  per  cent  or  so. 

The  nearer  a  limestone  approaches  in  composition  to  the  mix- 
ture used  in  Portland  Cement  manufacture  the  greater  its  value 
for  that  purpose,  for  it  will  require  the  addition  of  less  extrane- 
ous material  to  make  the  mixture  absolutely  correct  in  composi- 
tion. The  following  are  analyses  of  Portland  Cement  mixtures, 
ready  for  burning,  as  used  at  various  large  cement  plants  in  the 
United  States : 

Analyses  of  Portland  Cement  Mixtures 


i. 

2. 

3. 

4. 

Silica  (SiO2) 

12.85 

12.92 

13.52 

14.94 

Alumina  (A12O3)       .    .    . 

4.92 

4.83 

6.56 

2.66 

Iron  oxide  (Fe2O3) 

1.21 

1.77 

1.10 

Lime  carbonate  (CaCO3)              .    . 

76.36 

75.53 

75.13 

75.59 

Magnesium  carbonate  (MgCO3)     . 

2.13 

4.34 

4.32 

4.64 

It  will  be  seen  that  the  usual  mixtures  carry  from  75  to  77 
per  cent  of  lime  carbonate.  Bearing  this  in  mind,  it  will  be  ob- 
vious that  there  is  a  great  advantage  in  using,  as  one  of  the  raw 
materials,  a  limestone  of  about  this  degree  of  purity.  If  rock 
of  this  composition  occurs  in  sufficient  quantity,  it  would  require 
but  little  admixture  of  other  materials  to  keep  the  cement  correct 
in  composition. 

For  present  purposes  it  will  be  sufficiently  accurate  to  con- 
sider that  a  Portland  Cement  mixture,  ground  and  ready  for 
burning,  will  consist  of  about  75  per  cent  of  lime  carbonate 
(CaCO3)  and  20  per  cent  of  silica  (SiO2),  alumina  (A12O3)  and 
iron  oxide  (Fe2O3)  together,  the  remaining  5  per  cent  includ- 


VALUATION  OF  CEMENT  SECURITIES 

ing  any  magnesium  carbonate,  sulphur,  and  alkalies  that  may  be 
present. 

The  essential  elements  which  enter  into  this  mixture — lime, 
silica,  alumina,  and  iron — are  all  abundantly  and  widely  dis- 
tributed in  nature,  occurring  in  different  forms  in  many  kinds  of 
rocks.  It  can  therefore  be  readily  seen  that,  theoretically,  a  sat- 
isfactory Portland  Cement  mixture  could  be  prepared  by  com- 
bining, in  an  almost  indefinite  number  of  ways  and  proportions, 
many  possible  raw  materials.  Obviously,  too,  we  might  expect 
to  find  perfect  gradations  in  the  artificialness  of  the  mixture, 
varying  from  the  one  extreme  where  a  natural  rock  of  absolutely 
correct  composition  was  used,  to  the  other  extreme,  where  two  or 
more  materials,  in  nearly  equal  amounts,  are  required  to  make  a 
mixture  of  correct  composition. 

The  almost  infinite  number  of  raw  materials  which  are  theo- 
retically available  are,  however,  reduced  to  a  very  few  in  practise 
under  existing  commercial  conditions.  The  necessity  for  making 
the  mixture  as  cheaply  as  possible  rules  out  of  consideration  a 
large  number  of  materials  which  would  be  considered  available 
if  chemical  composition  was  the  only  thing  to  be  taken  into  ac- 
count. Some  materials,  otherwise  suitable,  are  too  scarce;  some 
are  too  difficult  to  pulverize  to  the  fineness  necessary  to  bring 
about  the  requisite  chemical  combination  of  the  mixture  in  the 
kiln.  In  consequence,  a  comparatively  few  combinations  of  raw 
materials  are  actually  used  in  practise. 

In  certain  localities  deposits  of  argillaceous  (clayey)  lime- 
stone or  "cement  rock"  occur,  in  which  the  lime,  silica,  alumina, 
and  iron  oxide  exist  in  so  nearly  the  proper  proportions  that  only 
a  relatively  small  amount  (say  10  per  cent  or  so)  of  other  ma- 
terial is  required  in  order  to  make  a  mixture  of  correct  composi- 
tion. 

In  the  majority  of  plants,  however,  most  or  all  of  the  neces- 
sary lime  is  furnished  by  one  raw  material,  while  the  silica,  alu- 
mina, and  iron  oxide  are  largely  or  entirely  derived  from  another 
raw  material.  The  raw  material  which  furnishes  the  lime  is 
limestone,  chalk,  or  marl,  while  the  silica,  alumina,  and  iron  oxide 
of  the  mixture  are  derived  from  clay,  shale,  or  slate. 

51 


THE    PORTLAND    CEMENT    INDUSTRY 

In  the  following  table  the  production  of  Portland  Cement  in 
the  United  States  is  classified  according  to  the  kinds  of  raw  ma- 
terials from  which  the  cement  was  manufactured. 

The  production  is  grouped  as  follows: 

Type  1  includes  cement  produced  from  a  mixture  of  argillaceous 
limestone  ("cement  rock")  and  pure  limestone.  This  is  the  com- 
bination of  materials  used  in  all  the  cement  plants  of  the  Lehigh 
district  of  Pennsylvania  and  New  Jersey,  and  also  at  several 
Western  plants. 

Type  2  includes  cement  made  from  a  mixture  of  comparatively 
pure  limestone  with  clay  or  shale.  This  mixture  is  employed  at 
many  plants  all  over  the  United  States. 

Type  3  includes  cement  manufactured  from  a  mixture  of  marl 
and  clay.  This  type  of  mixture  is  used  only  in  the  states  of  Mich- 
igan, Ohio,  Indiana  and  New  York. 

Type  4  includes  Portland  Cement  manufactured  from  a  mixture 
of  limestone  and  blast-furnace  slag. 

Production,  m  barrels,  and  percentage  of  total  output  of 

Portland  Cement  in  the   United  States  according  to 

type  of  material  used,  1898-1907. 


Year 

Type  1     Argillace- 
ous limestone  (ce- 
ment   rock)    and 
pure  limestone. 

Type  2.  Limestone 
and  clay  or  shale. 

Type  8.    Marl  and 
clay. 

Type  4.    Slag  and 
limestone. 

Quantity 

Per- 
cent- 
age 

Quantity 

Per- 
cent- 
age 

Quantity 

Per- 
cent- 
age 

Quantity 

Per- 
cent- 
age 

1898 
1899 
1900 
1901 
1902 
1903 
1904 
1905 
1906 
1907 

2,764,694 
4,010,132 
5,960,739 
8,503,500 
10,953,178 
12,493,694 
15,173,391 
18,454,902 
23,896,951 
25,859,095 

74.9 
70.9 
70.3 
66.9 
63.6 
55.9 
57.2 
52.4 
51.4 
53.0 

365,408 
546,200 
1,034,041 
2,042,209 
3,738,303 
6,333,403 
7,526,323 
11,172,389 
16,532,212 
17,190,697 

9.9 

9.7 
12.2 
16.1 
21.7 
28.3 
28.4 
31.7 
35.6 
35.2 

562,092 
1,095,934 
1,454,797 
2,001,200 
2,220,453 
3,052,946 
3,332,873 
3,884,178 
3,958,201 
3,606,598 

15.2 
19.4 
17.1 
15.7 
12.9 
13.7 
12.6 
11.0 
8.5 
7.4 

.    . 

32,443 
164,316 
318,710 
462,930 
473,294 
1,735,343 
2,076,000 
2,129,000 

0.4 
1.3 
1.8 
2.1 
1.8 
4.9 
4.5 
4.4 

GEOGRAPHIC  DISTRIBUTION  OF  CEMENT 
MATERIALS  IN  THE  UNITED  STATES 

It  is  of  course  impossible  to  discuss  this  subject  within  the 
limits  permissible  in  this  chapter,  for  any  satisfactory  treatment 


VALUATION  OF  CEMENT  SECURITIES 

of  it  would  require  hundreds  of  pages,  while  the  scope  of  the 
present  report  is  necessarily  restricted.  Detailed  descriptions  of 
this  character  are  contained  in  Bulletin  243  of  the  United  States 
Geological  Survey.  This  bulletin,  which  was  published  a  few 
years  ago,  but  was  soon  out  of  print,  is  now  being  rewritten  and 
will  be  issued  in  an  entirely  revised  form  as  soon  as  possible.  In 
order  to  fill  the  requirements  of  the  present  report,  an  attempt 
has  been  made  to  summarize  in  the  following  schedule  the  main 
facts  regarding  the  occurrence  or  non-occurrence  of  the  more 
important  cement  materials  in  the  various  states. 

Occurrence  of  the  more  important  cement  materials,  by  states. 


RawMaterials 

Fuels 

RawMaterials 

Fuels 

2       *. 

( 

i 

t-l         '     1 

i 

If  | 

V 

'g   CO 

•§   1  * 

1 

State 

ill! 

.§8 

State 

§1 

S-B  fj 

! 

"*  0 

'  c    ~"  o 

i 

I1)! 

i 

*3 

o 

1 

I1 

1  ;f 

13 

O     53      rt 
U     O     C 

Alabama     . 

A 

0 

A 

A 

0 

c 

Nebraska    .    .      B 

0     B 

0 

0 

0 

Arizona   .    . 

B 

0 

0 

C 

0 

0 

Nevada    .    .    . 

B 

0      0 

0 

0 

0 

Arkansas     . 

A 

0 

B 

A 

0 

0 

NewHampshire  |  B 

0 

0 

0 

0 

0 

California   . 

B 

0 

B 

C 

A 

c 

New  Jersey    . 

A 

c 

0 

0 

0 

o 

Colorado 

A 

0 

A 

B 

A 

0 

New  Mexico  . 

T» 

0 

0 

c 

0 

o 

Connecticut 

C 

0 

0     0 

0 

0 

New  York  .    .     A 

A 

0 

0    C 

B 

Delaware    . 

C 

0 

0     0 

0 

0 

North  Carolina 

/-« 

0 

A 

c 

o 

o 

Florida 

A 

0 

A 

0 

0 

0 

North  Dakota 

0 

0 

c 

0 

0 

o 

Georgia 

A 

0 

B 

B 

0 

0 

Ohio     .... 

A 

A 

0 

A 

A 

A 

Idaho   .        . 

B 

0 

0 

B 

o 

0 

Oklahoma  .    . 

A 

0  i  B 

A  A 

A 

Illinois 

A 

A 

0 

A 

A 

A 

Oregon    .    .    . 

C 

0  i  0 

0 

0 

Indiana 

A 

C 

o  |A 

A 

A 

Pennsylvania 

A 

0  !  0 

/i. 

A 

A 

Iowa     . 

A 

0 

0 

A 

0 

0 

Rhode  Island 

C 

0  |  0 

0 

0 

0 

Kansas 

A 

0 

c 

A 

A 

A 

South  Carolina 

C 

0  !  B 

0 

o 

o 

Kentucky    . 

A 

0 

0    A 

A 

A  i 

South  Dakota 

0 

0 

B 

0 

0 

0 

Louisiana   .         0 

0 

C    0 

B 

0 

Tennessee    .    . 

A 

0 

0 

A  r. 

c 

Maine  ...         B 

0 

0 

o 

0 

0 

Texas   .... 

A 

0 

A 

c 

A 

A 

Maryland    .       1  A 

0 

0 

A 

0 

0 

Utah    .... 

A 

0 

0 

A 

o 

o 

Massachusetts  I  C 

c 

0 

0 

0 

0 

Vermont     .    . 

B 

0 

0 

0 

o 

o 

Michigan     . 

A 

A 

0 

A 

0 

0 

Virginia  .    .    . 

A 

0 

A 

A 

0 

0 

Minnesota  . 
Mississippi  . 

C 
C 

C 

0 

0 
A 

0 

0 

0 
0 

0 
0 

Washington   . 
West  Virginia 

B 
A 

0 
0 

0 
0 

C 
A 

0 
A 

0 
A 

Missouri  .    . 

A 

0 

0    A 

0 

0 

Wisconsin    .    . 

C 

c 

0 

0 

o 

o 

Montana     . 

A 

0 

B 

c 

.„. 

Wyoming    .    . 

A 

0 

B 

A 

A 

i 

In  this  table  four  symbols  are  used  to  denote  various  degrees 
of  abundance  or  rarity.    A  indicates  the  occurrence  of  large  and 


53 


THE    PORTLAND    CEMENT    INDUSTRY 

widely  distributed  deposits;  B  indicates  the  occurrence  either  of 
a  few  large  deposits  or  of  a  number  of  small  ones;  C  indicates 
the  occurrence  of  a  few  small  deposits  only ;  O  indicates  that  the 
material  is  either  absolutely  wanting  or  is  so  scarce  as  not  to  be 
of  any  possible  commercial  importance. 

In  regard  to  the  fuel  supplies  noted  in  the  table,  a  word  of 
caution  is  necessary.  The  term  "coal"  is  here  limited  to  such 
coals  as  can  be  used  in  cement  manufacture  with  reasonable 
economy.  Peat,  lignite,  and  many  Western  "coals"  are  therefore 
omitted  from  consideration. 


THE.  IMPORTANCE  OF  FUEL  SUPPLIES 

The  necessity  that  any  proposed  cement  location  should  be 
advantageously  situated  with  regard  to  fuel  supplies  can  hardly 
be  stated  too  strongly.  The  importance  of  this  feature  of  the 
location  can  be  understood  when  it  is  recollected  that  the  average 
plant  will  use  in  the  neighborhood  of  200  pounds  of  coal  per 
barrel  of  cement  produced.  In  other  words,  the  fuel  used  in 
power  plant  and  kilns  will  weigh  half  as  much  as  the  product,  in 
a  good  plant,  while  this  proportion  may  be  greatly  exceeded  in 
a  poor  plant  or  in  one  operating  on  wet  raw  materials. 

It  is  obvious  that  since  fuel  is  such  an  item  in  the  total  costs 
of  cement  manufacture,  a  proposed  plant  should  be  so  located 
as  to  secure  a  regular  supply  of  cheap  and  good  fuel.  The  lack 
of  such  supplies  is  what  operates  so  strongly  to  discourage  cement 
manufacture  along  the  Southern  Atlantic  Coast,  for  example, 
and  in  most  portions  of  the  West. 

The  fuels  used  in  Portland  Cement  kilns  are  powdered  coal, 
oil,  natural  gas,  and  producer  gas.  The  relative  importance  of 
these  four  fuels  is  well  brought  out  by  the  following  table,  which 
is  based  upon  the  official  statistics  for  1907,  the  latest  available. 

Oil  is  used  by  all  of  the  cement  plants  in  Arizona,  California, 
Texas  and  Washington.  Natural  gas  is  used  by  all  the  operating 
Kansas  plants,  and  by  one  plant  elsewhere.  A  small  output  on 
producer  gas  at  one  plant  is  included  in  the  natural-gas  figures. 

54 


VALUATION  OF  CEMENT  SECURITIES 

Powdered  coal  is,  however,  the  principal  fuel  used,  79  plants, 
with  a  toal  of  753  kilns,  and  producing  88.5  per  cent  of  the  total 
output,  being  equipped  with  powdered-coal  burners. 

Fuels  used  m  Portland  Cement  plants  in  1907. 


Fuel  Used 

Number 
of 
plants. 

Number 
of  kilns. 

Output  in 
1907 

Per- 
centage, 
of  total 

Powered  Coal     

Barrel*. 

Oil            

79 

753 

43,151,461 

88.5 

Natural  Gas 

8 

64 

2,229,004 

4.5 

6 

58 

1  3,404,925 

7.0 

1 

1 

Total       

94 

876 

48,785,390 

100. 

Throughout  the  greater  part  of  the  Middle,  Eastern  and 
Southern  United  States  kiln  and  power  coals  of  at  least  fair 
quality  can  be  obtained  at  costs  of  from  $1.50  to  $3.00  per  ton 
at  mill,  the  cost  depending  more  on  the  location  of  the  cement 
plant  with  respect  to  the  coal  fields  than  on  the  quality  of  the 
coal.  If  we  assume  that  the  plant  uses  200  pounds  of  coal  per 
barrel  of  cement,  the  fuel  cost  will  therefore  range  between  15 
and  30  cents  per  barrel  of  product.  It  is  obvious  that  with  this 
allowance  for  fuel  alone,  the  promoter  who  expects  to  make 
cement  at  a  total  cost  of  fifty  cents  or  less  per  barrel  has  little 
margin  left  for  labor,  supplies,  repairs,  raw  materials  and  other 
items  of  expense. 

As  a  matter  of  fact,  most  promoters  recognize  this  difficulty, 
and  in  order  to  avoid  it  promise  to  run  their  plants  on  natural 
gas  at  a  merely  nominal  fuel  cost.  In  Kansas  and  Oklahoma, 
particularly,  we  find  prospective  plants  allowing  from  two  to 
ten  cents  per  barrel  for  total  fuel  cost.  That  most  of  these  low 
estimates  are  based  on  very  erroneous  data,  even  in  dealing  with 
a  natural  gas  proposition,  is  evidenced  by  the  following  state- 
ment relative  to  fuel  conditions  in  the  principal  Kansas  cement 
district,  prepared  by  an  engineer  well  acquainted  with  the  situa- 
tion there: 


55 


THE    PORTLAND    CEMENT    INDUSTRY 

There  is  now  no  pool  of  gas  developed  in  Allen  County  which 
will  supply  sufficient  fuel  to  run  a  cement  plant  of  2500  barrels 
daily  capacity,  as  was  the  case  two  or  three  years  ago. 

The  plants  in  operation  derive  their  gas  from  several  pools, 
scattered  far  apart,  and  it  has  been  necessary  to  construct  miles  of 
pipe  line  in  order  to  connect  these  pools  with  the  plant. 

In  order  to  conduct  gas  any  distance,  say  twelve  or  fifteen 
miles,  to  a  plant  manufacturing  two  to  three  thousand  barrels  of 
cement  daily ,  it  would  require  a  12-in.  pipe  line;  the  cost  of  which, 
when  right-of-way,  damages,  etc.,  is  added  to  the  cost  of  the  pipe 
and  laying  same,  is  close  to  ten  thousand  dollars  per  mile. 

The  Kansas  Natural  Gas  Co.  and  other  companies  who  handle 
gas  commercially  pay  two  cents,  or  even  more,  per  thousand  cubic 
feet,  rather  than  lease  the  land  and  develop  the  gas  themselves. 
Added  to  this  the  cost  of  pipe-line  and  other  necessary  equipment, 
it  can  readily  be  .seen  that  when  gas  has  to  be  carried  even  a  small 
distance,,  four  or  five  cents  per  thousand  cubic  feet  is  a  low  estimate 
of  the  cost. 

The  Kansas  Natural  Gas  Co.  has  never  sold  gas  to  manufac- 
turing institutions  for  less  than  8  cents  per  thousand  cubic  feet,  and 
would  make  no  contract  for  definite  time  or  definite  quantity  at 
this  price,  and  have  persistently  refused  to  supply  gas  for  manufac- 
turing purposes,  claiming  that  they  could  only  afford  to  produce 
and  carry  gas  for  such  a  price  as  they  could  command  for  domestic 
consumption. 

It  requires  from  3,500  to  4,000  cubic  feet  of  gas  for  fuel  pur- 
poses to  produce  a  barrel  of  cement.  Taking  this  into  considera- 
tion, and  at  the  figures  above  mentioned,  it  is  very  evident  that 
anyone  is  guessing  and  not  stating  developed  facts  when  they 
claim  that  cement  plants  can  produce  cement  in  Allen  County  for 
less  than  14  cents  per  barrel  for  fuel. 

These  figures  are  based  on  using  long  kilns,  and  good  Corliss 
engines,  with  good  boiler  conditions.  If  gas  engines  were  used  to 
develop  power,  the  figures  might  be  reduced  500  cubic  feet  per 
barrel,  but  this  would  be  liable  to  introduce  other  features,  in  the 
way  of  unsatisfactory  operation,  which  would  counterbalance  the 
difference  in  gas  cost. 

TRANSPORTATION  FACILITIES 

As  Portland  Cement  is  a  cheap  and  bulky  product,  special 
attention  should  be  paid  to  the  shipping  facilities  of  tbe  location 
at  which  it  is  proposed  to  erect  a  new  cement  plant.  It  must  be 

56 


VALUATION  OF  CEMENT  SECURITIES 

on  transportation  routes  which  give  access  to  important  markets, 
or  else  a  large  plant  is  not  justified;  and  the  rates  to  these  mar- 
kets must  be  low  enough  to  put  the  new  plant  on  at  least  an 
equal  basis  with  its  nearest  competitors.  Further,  the  road  or 
roads  on  which  it  is  located  must  be  of  such  a  class  as  to  be  able 
to  afford  good  car  service  at  all  times  of  the  year.  Some  South- 
ern roads,  for  example,  never  have  any  cars  to  use  for  manu- 
factured products  during  the  cotton-shipping  season ;  while  some 
of  the  Western  lines  are  almost  as  useless  to  the  cement  manu- 
facturer while  the  crops  are  moving. 

It  is  of  course  obvious  that  a  cement  plant  located  on  only  one 
transportation  route  is  usually  at  a  very  serious  disadvantage. 
Until  railroad  management  becomes  more  purely  altruistic  than 
it  is  at  present,  there  will  be  very  material  benefits  to  be  derived 
in  so  locating  the  plant  that  it  can  ship  over  two  or  more  roads. 
It  is  hardly  necessary  to  enumerate  the  advantages  thus  obtained ; 
they  consist,  briefly,  of  competitive  rates,  satisfactory  switching 
arrangements,  and  adequate  car  service. 

There  is  a  certain  moral  advantage  in  having,  in  addition  to 
the  railroads,  a  navigable  river  or  canal  close  at  hand.  Under 
ordinary  circumstances  it  is  of  course  unlikely  that  much  cement 
will  ever  be  shipped  over  either  river  or  canal,  but  their  presence 
is  of  use  as  an  argument.  In  a  few  cases,  it  is  true,  as  on  the 
Lakes,  the  lower  Mississippi,  or  the  Hudson,  the  water  trans- 
portation is  really  a  serious  factor  in  the  situation. 

MARKETS  AND  COMPETITION 

In  selecting  a  plant  location,  the  technical  advantages  of  the 
raw  materials  at  some  given  site  must  not  be  permitted  to  have 
undue  weight.  The  only  good  reason  for  building  a  cement 
plant  anywhere  is  that  it  can  be  expected  to  sell  at  a  profit  the 
cement  which  it  makes,  and  no  possible  advantages  in  the  way  of 
raw  materials  can  make  up  for  the  lack  of  a  good  local  market. 
Of  course  in  a  rapidly  developing  section  some  allowance  may 
be  made  for  possible  future  growth  of  this  market,  but  at  least 
some  of  the  market  must  be  there  by  the  time  the  plant  is  built. 

57 


THE    PORTLAND    CEMENT    INDUSTRY 

It  is  a  question  if  this  phase  of  the  matter  has  not  been  overlooked 
in  some  of  the  recent  Western  promotions,  located  in  areas  densely 
populated  by  jack-rabbits.  Plants  built  in  Southern  swamps, 
with  the  expressed  intention  of  supplying  the  Panama  Canal 
with  cement,  are  in  even  worse  case. 

In  considering  the  earning  possibilities  of  a  prospective  plant 
in  a  new  district,  without  present  local  competition,  the  certainty 
of  future  competition  must  not  be  lost  sight  of.  It  is  not  pos- 
sible to  prevent  this,  but  it  is  usually  possible  to  so  select  the  site 
of  the  first  plant  that  future  competitors  must  operate  at  more 
or  less  of  a  disadvantage.  It  is  in  this  respect  that  "promoted" 
plants  are  requently  defective,  for  their  site  is  selected  not  be- 
cause it  is  the  best  possible  in  that  locality,  but  because  the  owner 
of  that  particular  piece  of  land  was  willing  to  sell  cheap,  or  to 
take  stock  in  payment,  or  for  some  other  reason  of  similar  type. 

FINANCIAL  PLANS 

If  the  new  project  appears,  on  examination,  to  be  sound  so 
far  as  all  of  its  technical  and  commercial  factors  are  concerned, 
there  is  still  room  for  further  inquiry  and  study  on  the  part  of 
the  investor,  for  he  must  assure  himself  that  the  project  has  been 
financed  along  reasonable  and  even  conservative  lines.  The  plant 
itself  may  turn  out  to  be,  technically,  a  successful  cement-maker ; 
but  if  the  stock  issues  are  out  of  all  relation  to  actual  construction 
cost,  the  returns  on  the  investment  will  be  small  or  entirely  lack- 
ing, while  if  the  company  is  loaded  down  with  excessive  fixed 
charges  the  entire  investment  may  be  lost. 

Both  the  methods  and  the  results  of  the  financing  operations 
require  careful  scrutiny,  and  it  is  more  than  hazardous  to  ac- 
cept prospectus-statements  regarding  these  features  of  the  enter- 
prise at  their  face  value.  In  the  remaining  chapters  of  this 
book  the  matters  of  promotion  methods,  bond  issues,  stock  capi- 
talization and  profits  will  be  taken  up  separately,  and  dealt  with 
in  the  detail  which  their  importance  justifies. 


CHAPTER 
V 

THE   METHODS  AND  PROFITS   OF 
CEMENT  PROMOTIONS 

IN  the  present  chapter  an  attempt  is  made  to  discuss 
certain  matters,  acquaintance  with  which  may 
save  the  investor  or  banker  from  considerable  loss  at  a 
time  when  cement  promotions  are  offered  to  him.  Be- 
ginning with  an  estimate  of  the  total  amount  of  such 
promotions  which  are  in  view  at  present,  an  outline  is 
given  of  the  general  methods  pursued  by  the  promoter 
of  cement  propositions,  and  of  the  source  and  amount 
of  his  profits.  This  is  followed  by  a  discussion  of  some 
of  the  more  obvious  errors  usually  contained  in  the  pro- 
spectus of  a  "promoted"  cement  plant. 

THE  IMPENDING  FLOOD  OF  CEMENT  SECURITIES 

Not  so  many  years  ago  a  leading  financier  described  an  acute 
crisis  in  the  New  York  market  as  being  due  to  the  presence  of 
an  excess  of  "undigested  securities,"  on  which  statement  Mr. 
James  J.  Hill  promptly  commented  that  the  bulk  of  the  securi- 
ties in  question  were  not  only  "undigested"  but  positively  "indi- 
gestible." At  that  date  neither  of  these  terms  could  fairly  have 
been  applied  to  the  relatively  few  cement  securities  which  had 
then  been  offered  to  investors,  for  most  of  the  early  cement  com- 
panies were  financed  privately,  capitalized  on  a  reasonable  basis, 
and  managed  much  like  private  businesses.  It  is  only  within 
the  past  few  years  that  we  have  seen  the  cement  industry  made 
the  basis  for  wholesale  attempts  at  robbing  the  investing  public 
through  the  agency  of  overcapitalized  projects  and  misleading 
prospectuses. 

Until  figures  on  the  subject  are  assembled  and  compared,  it  is 
difficult  to  realize  the  extent  to  which  foolish  or  fradulent  pro- 

59 


THE    PORTLAND    CEMENT    INDUSTRY 

motion  has  been  carried  in  the  cement  industry.  An  estimate 
made  recently  showed  that  there  were  already  in  the  United  States 
113  cement  plants,  with  a  total  capitalization  of  $141,587,000. 
These  actual  plants  had  a  total  annual  capacity  of  over  eighty- 
five  and  a  half  million  barrels,  while  their  production  in  1907 
was  less  than  forty -nine  million  barrels.  In  other  words,  the 
existing  plants  could  not  run  profitably  at  much  over  half  their 
rated  capacity. 

As  compared  to  the  real  condition  of  the  industry  at  that 
date,  the  same  estimate  showed  that  114  new  plants  were  then  in 
various  stages  of  promotion.  These  projected  plants  had  a  total 
capitalization  of  $160,125,000  and  a  total  annual  capacity  of 
62,000,000  barrels. 

The  comparison  of  these  two  sets  of  figures  brings  out  sharply 
two  facts.  The  first  is  that  with  an  annual  output  of  not  much 
over  half  the  capacity  of  existing  plants,  preparations  are  being 
made  to  add  sixty-two  million  barrels  of  cement  per  year  to  the 
capacity.  The  second  fact  of  importance  is  that  the  proposed 
plants  are  capitalized  much  more  heavily  than  the  old  ones. 


Capitalization 

Capacity 

Capital  per  barrel 

Existing  plants  .    . 
Proposed  plants.    . 

$141,687,000 
160,125,000 

85,505,000 
62,000,000 

$1.65 
2.58 

As  a  matter  of  fact,  it  is  probable  that  if  this  estimate  were 
brought  up  to  date,  the  contrast  between  the  two  sets  of  figures 
would  be  still  more  striking.  It  is  probably  well  within  limits  to 
say  that  as  soon  as  general  market  conditions  seem  to  warrant 
it,  the  people  of  the  United  States  will  be  asked  to  furnish  be- 
tween 175  and  200  millions  of  dollars  for  the  purpose  of  erecting 
new  cement  plants,  and  that  much  over  half  of  that  immense 
total  will  represent  investments  of  very  doubtful  value. 

THE  PROFITS  OF  CEMENT  PROMOTERS ;  THEIR 
SOURCE  AND  AMOUNTS 

In  almost  every  fraudulent  cement  promotion,  whatever  its 
scale,  the  profits  of  the  promoters  are  taken  off  at  two  stages. 

60 


METHODS  AND  PROFITS  OF  CEMENT  PROMOTIONS 

In  the  first  stage  a  relatively  small  but  quick  profit  is  made  on 
the  land  purchase  necessary  to  supply  the  proposed  company  with 
raw  materials,  while  in  the  second  stage  much  larger  profits  are 
secured  on  the  construction  account.  It  may  be  of  interest  to 
follow  a  hypothetical  case  through  its  various  stages  and  en- 
deavor to  get  some  idea  of  the  source  and  amount  of  the  pro- 
moters' profits. 

We  will  assume  that  in  passing  through  a  prairie  state  the 
promoter  has  noticed  a  disused  lime  kiln,  and  the  idea  strikes  him 
that  here  is  a  possible  site  for  the  Great  Plains  Cement  Corpora- 
tion. A  sample  of  the  rock  is  sent  to  the  nearest  chemist,  and  if 
it  shows  less  than  3  per  cent  magnesia  no  further  tests  are  neces- 
sary at  this  stage  of  the  proceedings.  About  two  hundred  acres 
of  land  are  now  optioned  or  bought.  As  the  limestone  outcrops 
all  over  this  land  it  is  worthless  agriculturally,  and  costs  per- 
haps ten  dollars  an  acre. 

The  next  step  is  to  arrange  for  the  concurrent  "experting" 
and  advertising  of  the  find.  As  to  experting,  it  will  be  advisable 
to  have  several  reports.  The  cheapest  and,  from  the  promoters' 
point  of  view,  the  safest  method  of  handling  this  matter  is  along 
the  following  lines. 

The  property  should  be  examined  for  a  report  as  to  quantity 
of  material  by  some  local  man.  It  is  best  to  secure  the  State 
Geologist  or  State  Chemist  for  this  purpose  when  possible,  as 
they  have  a  number  of  advantages  over  others.  First,  their  ser- 
vices are  cheap  or  entirely  free.  Second,  they  have  no  embar- 
rassing knowledge  concerning  the  cement  business.  Third,  they 
do  have  local  pride,  and  will  be  glad  to  have  a  large  cement 
plant  located  in  their  state.  Fourth,  their  official  positions  will 
add  weight  to  their  reports. 

The  local  expert  will  select  several  sets  of  satisfactory 
samples,  and  duplicate  sets  can  be  then  sent  to  two  absolutely 
reputable  Eastern  laboratories  for  analyses  and  burning  tests. 
Three  of  the  necessary  reports  will  have  then  been  obtained.  It 
is  usually  desirable  to  secure  a  fourth,  containing  estimates  as 
to  costs,  profits,  etc.  This  can  often  be  gotten  very  reasonably 
from  the  representative  of  a  firm  interested  in  selling  cement 

61 


THE    PORTLAND    CEMENT    INDUSTRY 

machinery.  The  proposition  is  now  fully  equipped  as  to  reports, 
and  is  almost  ready  for  flotation. 

The  expenses  to  date  have  been  about  as  follows : 

200  acres  of  land  at  $10 $2000 

Expert's  reports 1750 

Local  advertising 250 

The  last  item  will  cover  the  insertion  of  items  relating  to  the 
recent  rapid  growth  of  the  cement  industry  elsewhere,  to  the 
fabulous  profits  of  the  Trust,  to  the  advantages  of  making  ce- 
ment locally,  and  to  the  investigations  which  are  being  carried  on 
for  "the  largest  Eastern  cement  company,"  for  "directors  of 
the  Standard  Oil  Company"  or  for  other  probable  investors. 
These  will  serve  to  create  an  educated  public  opinion,  and  will 
prepare  the  local  banking  interests  to  take  up  their  part  of  the 
work. 

The  Great  Plains  Cement  Corporation  can  now  be  incorpor- 
ated, with  a  capitalization  and  bond  issue  arranged  about  as  fol- 
lows: 

Bonds,  6  per  cent $1,500,000 

Preferred  stock,  7  per  cent,  cumulative 2,000,000 

Common  stock 2,000,000 

Of  the  bonds,  $200,000  are  set  aside  to  cover  purchase  money 
and  other  expenses  connected  with  acquiring  the  valuable  raw 
material  properties  of  the  corporation.  Charters  from  most 
states  will  provide  that  the  directors'  opinion  as  to  the  value  of 
these  properties  is  conclusive,  but  it  will  be  well  to  furnish  pre- 
sumptive evidence  in  one  of  the  expert  reports.  The  following 
statements  would  serve  this  purpose  well: 

Professor ,  State  Geologist  and  President  of  the  — 

University,  has  estimated  that  our  200  acres  of  land  contain  above 
a  depth  of  100  feet  fifty  million  tons  of  limestone  and  ten  million 
tons  of  shale.  The  official  reports  of  the  United  States  Geological 
Survey  show  that  the  average  value  of  the  limestone  quarried  last 
year  was  $1.20  per  ton.  To  be  entirely  conservative,  however,  we 
will  assume  that  our  vast  limestone  deposit  is  worth  only  ten  cents 
per  ton.  On  this  basis  the  property  contains  limestone  alone  whose 
value  is  $5,000,000,  to  say  nothing  of  the  shale,  much  of  which 

62 


METHODS  AND  PROFITS  OF  CEMENT  PROMOTIONS 

would  make  excellent  pressed  brick  as  well  as  cement.  Under 
these  circumstances  our  stockholders  are  to  be  congratulated  on 
having  secured  this  magnificent  reserve  of  raw  material  at  a  cost 
of  less  than  one-twentieth  of  its  real  value,  as  certified  by  Govern- 
ment experts.' 

A  statement  such  as  the  above  will  add  to  the  interest  of  the 
prospectus  as  well  as  tending  to  exonerate  the  directors  from  sus- 
picion of  having  overvalued  the  property. 

At  this  stage  of  the  proceedings  the  promoter  has  expended 
$4,000,  and  has  received  in  return  bonds  of  the  par  value  of 
$200,000,  which  the  next  steps  will  allow  him  to  dispose  of  for 
perhaps  $125,000  in  cash. 


In  order  to  secure  all  the  possible  profits,  it  is  good  policy  to 
proceed  now  to  organize  the  Altrurian  Construction  Company, 
with  a  full-paid  capitalization  of  one  thousand  dollars,  the  stock 
being  held  by  the  promoter  and  his  ground-floor  associates.  The 
Altrurian  Construction  Company  will  then  agree  to  construct 
and  deliver  to  the  Great  Plains  Cement  Corporation  a  modern 
well-built  plant  of  a  daily  capacity  of  2,000  barrels,  and  to  ac- 
cept in  payment  therefor  the  entire  stock  and  bond  issue  of  the 
Great  Plains  Cement  Corporation,  excepting  the  $200,000  in 
bonds  already  paid  for  the  land. 

The  construction  company  is  now  ready  to  realize  on  the 
bond  and  stock  issues  of  the  cement  company  as  they  are  paid 
over  to  it.  If  times  are  prosperous  and  the  public  is  in  a  mood 
to  snatch  greedily  at  well-advertised  offerings  of  this  type,  it 
will  be  usually  possible  to  turn  the  bonds  over  to  a  syndicate  of 
small  local  bankers,  who  will  underwrite  them  at  80  and  get  a 
bonus  of  ten  shares  of  preferred  and  ten  shares  of  common  with 
each  thousand-dollar  bond  disposed  of.  The  public  will  com- 
monly take  the  bonds  at  par,  with  a  bonus  of  five  shares  of  stock 
with  each  bond.  After  the  bonds  are  out  of  the  way,  the  pre- 
ferred stock  can  usually  be  marketed  at  or  near  par,  with  a  half- 
share  of  common  as  a  bonus.  The  net  results  of  these  operations 
will  be  ummarized  later. 


63 


THE    PORTLAND    CEMENT    INDUSTRY 

The  plant  can  either  be  built  directly  by  the  Altrurian  Con- 
struction Company,  or  the  contract  can  be  sublet  to  a  reliable 
firm  already  equipped  for  such  work.  In  either  case,  a  good 
2,000  barrel  plant  can  be  delivered  to  the  Great  Plains  Cement 
Corporation,  with  sufficient  working  capital  to  keep  it  off  the 
rocks  for  a  year,  at  a  net  cost  of  not  over  $750,000  to  the  con- 
struction company. 

Assuming  that  the  promoters  do  not  desire  to  retain  any  in- 
terest in  the  project,  and  that  all  the  issues  are  now  in  the  hands 
of  the  public,  the  three  parties  to  the  transaction  will  stand  as 
follows : 

1.  The  public  have  paid  $2,500,000  for  the  entire  bond  issue, 
with  which  they  received  a  bonus  of  12,500  shares  of  common  stock. 
They  have  also  bought  the  entire  preferred  issue  at  par,  and  have 
received  20,000  shares  of  common  as  a  bonus  with  it.     The  remain- 
ing common,  as  noted  below,  has  been  distributed  otherwise,  without 
direct    cost    to    the    public.       The    public    have    paid    altogether 
$3,500,000  in  cash. 

2.  The  promoter  has  paid  out  $754,000   for   land,   plant,  and 
working  capital.     In  return  he  has  received  $1,200,000  from  the 
bonds,  and  $450,000  from  the  sale  of  his  portion  of  the  preferred 
at  90.     It  is  assumed  that  he  has  given  up  the  $250,000  excess  of 
common  stock,  at  the  urgent  request  of  the  banking  syndicate,  for 
use  in  advertising  and  wash  sales. 

3.  The  bulk  of  the  profits  have  of  course  gone  to  the  under- 
writers, but   as   the   promoter  will   usually   have   at  least  a   minor 
interest  in  the  underwriting  he  can  not  well  complain  of  this. 


Industrially  the  net  result  is  that  the  country  is  presented 
with  a  new  cement  plant  heavily  overcapitalized  both  as  to  stock 
and  bonds.  The  way  in  which  this  overissue  of  securities  has 
come  about  is  summarized  below: 


Actual  cost  of  land  and  plant,  and  working  capital $754,000 

Promoters'  profits  on  purchase  and  construction 896,000 

Underwriting  profits  and  marketing  expenses 1,650,000 

Total  cost  to  public $3,300,000 

Excess  stock  as  bonuses,  etc 2,200,000 

Total  face  value  stock  and  bond  issue $5,500,000 

64 


METHODS  AND  PROFITS  OF  CEMENT  PROMOTIONS 

The  above  example  of  cement  plant  promotion  might  perhaps 
be  regarded  as  exaggerated,  but  unfortunately  almost  every  ele- 
ment in  it  can  be  matched  on  comparison  with  promotions  actually 
on  foot  to-day,  or  which  have  been  placed  before  the  public  with- 
in the  past  three  years. 

THE  MISSTATEMENTS  OF  CEMENT  PROSPECTUSES 

It  is  obvious  that  such  a  proposition  as  outlined  on  preced- 
ing pages  could  not  be  successfully  floated  if  the  prospective 
purchasers  of  the  bonds  and  stock  had  the  faintest  idea  of  the 
truth  regarding  conditions  in  the  cement  industry.  Neverthe- 
less, flotations  of  equally  bad  character  have  been  successfully 
accomplished  in  the  immediate  past,  and  similar  schemes  will  un- 
doubtedly again  attract  attention  when  business  revives  suffi- 
ciently to  make  them  possible.  Their  successful  flotation  is  ac- 
complished by  trading  on  the  profound  ignorance  of  bankers 
and  the  public  regarding  cement  conditions,  and  by  increasing 
this  ignorance  through  the  medium  of  most  attractive  prospect- 
uses and  advertisements. 

It  is  of  course  difficult  to  name  in  advance  all  of  the  errors 
and  misstatements  which  are  likely  to  be  found  in  a  cement 
prospectus,  but  certain  types  of  misstatement  occur  very  uni- 
formly throughout  this  class  of  literature,  and  these  persistent 
types  of  error  may  conveniently  be  grouped  as  follows : 

A.  Misstatements  as  to  the  GENERAL  CONDITIONS  of  the 
industry ;  as  to  the  demand  being  greatly  in  excess  of  the  supply ;  as 
to  the  effect  of  individual  engineering  works — i.e.,  the  Panama 
Canal — on  the  cement  market. 

B.  Excessive  valuations  placed  on  RAW  MATERIAL  SUP- 
PLIES. 

C.  Misstatements    as    to    average    SELLING    PRICES    to    be 
expected. 

D.  Low  estimates  as  to  MANUFACTURING  COSTS. 

E.  Exaggerated  estimates  of  PROFITS  to  be  realized. 

In  the  following  pages  each  of  these  types  of  misstatement 
will  be  taken  up  in  turn;  examples  of  each  will  be  given  from 

6s 


THE    PORTLAND    CEMENT    INDUSTRY 

actual  prospectuses ;  and  the  facts  in  the  case  will  be  briefly  dis- 
cussed. 

A.    MISSTATEMENTS   AS    TO    GENERAL    CONDITIONS 

The  average  prospectus  will  on  examination  be  found  to  con- 
tain a  series  of  misstatements  relative  to  the  general  conditions  of 
the  cement  industry.  Starting  with  statements  as  to  the  rapid 
growth  of  the  industry  in  the  period  1890-1906,  inclusive,  which 
was  astonishing  enough,  the  prospectus-writer  goes  on  to  say 
that  its  future  growth  will  be  more  rapid  and  equally  steady. 
The  probabilities  in  this  line  have  been  discussed  at  length  in  an 
earlier  chapter  of  this  book,  where  the  conclusion  was  reached 
that  the  period  of  steady  and  uninterrupted  growth  reached  its 
climax  during  the  early  part  of  the  year  1907,  and  that  here- 
after we  may  expect  the  industry  to  follow  closely  the  other 
basic  manufacturing  industries  in  their  close  dependence  on  gen- 
eral business  conditions. 

Much  stress  is  also  laid,  in  a  number  of  prospectuses,  on  the 
market  which  will  be  afforded  by  single  engineering  works — the 
favorite  example  being,  of  course,  the  Panama  Canal. 

The  following  extracts  from  recent  promotion  literature  are 
fair  samples  of  the  sort  of  misrepresentations  that  can  be  ex- 
pected along  these  lines : 

Not  a  failure  ever  recorded  in  a  modern  Portland  Cement  indus- 
try; not  a  Portland  Cement  plant  that  is  not  away  behind  in  its 
orders;  not  a  Portland  Cement  security  that  is  not  paying  good 
dividends ;  not  a  year  but  the  uses  of  Portland  Cement  are  on  the 
increase;  not  a  possibility  of  a  failure  in  our  project  where  the 
supply  of  natural  cement  stone  is  inexhaustible  and  where  orders 
are  waiting  for  full  capacity  of  plant. 

It  is  an  important  fact  that  holders  of  cement  stock  are  a 
satisfied  lot  of  investors,  because: 

1.  They  are  receiving  regular  and   generous,  and  in  some  in- 
stances enormous    returns  on  their  investment. 

2.  They  are  owners  in  a  manufacturing  business  that  is  over- 
whelmed with  orders  for  its  output. 

3.  They  can  see  a  splendid  surplus  growing,  which  pays  back 
their  original  investment,  leaving  big  dividends   on  their  common 
stock. 

66 


METHODS  AND  PROFITS  OF  CEMENT  PROMOTIONS 

4.  There  has  never  been  a  failure  in  a  Portland  Cement  factory. 

5.  The  assets  of  the  company  are  always  in  sight,  where  every 
stockholder  can  see  and  know. 

6.  The  raw  material  in  the  business  which  produces  the  profits 
is  not  subject  to  manipulation  whereby  it  loses  its  value. 

7.  There  is  no  possibility  of  the  supply  of  rock  giving  out  on 
our  property  as  quantities  can  be  estimated  without  a  doubt  and 
an  absolute  measurement  made  where  deposits  are  entirely  on  the 
surface. 


According  to  commercial  journals,  the  supply  of  Portland 
Cement  at  this  writing  is  short  of  the  demands  more  than  2,500,000 
barrels. 


We  are  better  situated  than  any  other  concern  in  the  United 
States  for  cheap  transportation  to  Panama.  The  building  of  this 
canal  will  consume  daily  more  than  one-third  of  the  entire  output 
of  Portland  Cement  in  the  United  States  to-day.  This  will  raise 
the  price  of  Portland  Cement. 


B.    EXCESSIVE  VALUATIONS   OF  RAW   MATERIAL  SUPPLIES 

A  second  interesting  series  of  misrepresentations  group  them- 
selves around  the  question  of  raw  material  supplies.  In  an  earlier 
chapter  it  has  been  noted  that  good  cement  materials  are  so  com- 
mon, and  so  widely  distributed  throughout  the  United  States,  as 
to  be,  of  themselves,  almost  valueless.  This  view  of  the  case  is 
not  to  the  promoter's  liking,  however,  and  in  many  prospectuses 
we  find  misstatements  tending  to  give  the  idea  that  the  particu- 
lar company  under  promotion  has  a  monopolistic  control  over 
desirable  raw  material  supplies.  The  following  extracts  will 
serve  to  exemplify  this  type  of  misrepresentation : 

The  material  used  in  making  Portland  Cement  is  natural  Port- 
land Cement  rock,  which  is  found  only  in  the  state  of  Pennsylvania 
and  Southern  Alabama.  The  latter,  however,  on  our  property, 
is  a  soft  rock,  which  is  easily  and  cheaply  manipulated,  while 
that  of  Pennsylvania  is  a  very  hard  substance  and  very  expensive  to 
reduce,  besides  being  treacherous  in  its  analysis.  Mills  in  other 
states  than  the  above  must  use  a  mixture  of  marl,  limestone,  clay 
and  gypsum. 


THE    PORTLAND    CEMENT    INDUSTRY 

There  are  only  four  locations  in  the  world  where  are  found 
natural  rocks  which  when  calcined  at  a  very  high  heat,  will  in 
themselves  produce  clinker,  making  a  high  grade  of  Portland  Ce- 
ment, namely:  In  the  Lehigh  district  in  Pennsylvania,  at  Bou- 
logne in  France,  and  in  Belgium,  and  at  no  place  in  such  enormous 
quantities  as  on  this  company's  property.  The  rock  has  been 
tested  to  a  depth  of  300  feet  and  is  uniform  in  its  character 
throughout.  Estimating  the  rock  at  only  one  ton  to  the  cubic  yard 
throughout,  we  get  the  enormous  total  of  200,000,000  tons,  or  count- 
ing five  barrels  per  ton,  we  have  1,000,000,000  barrels;  enough  for 
nearly  all  time  to  come. 


On  this  company's  land  the  three  items  of  raw  material  essen- 
tial in  the  production  of  Portland  Cement — shale,  limestone  and 
coal — are  found  in  inexhaustible  quantities  and  of  superior  quality. 
Expert  opinion  has  estimated  that  the  value  of  the  coal  on  the 
property,  on  a  basis  of  ten  cents  a  ton  in  the  ground,  would  return 
to  the  company  over  $3,000,000;  and  the  shale  and  limestone,  esti- 
mating each  item  at  two  cents  per  ton  in  the  quarries,  the  values  of 
each  would  be  $2,000,000 — a  total  minimum  valuation  of  raw 
material  on  the  company's  property  of  $7,000,000. 


C.    MISSTATEMENTS    AS    TO    SELLING    PRICES 

The  promoter,  as  shown  by  the  following  prospectus  extract, 
usually  fixes  the  selling  price  of  his  cement  at  between  $1.50  and 
$2.00  per  barrel  in  bulk  at  the  mill,  regardless  of  the  fact  that 
the  day  of  such  prices  passed  away  a  decade  ago.  The  tables 
of  average  selling  prices  published  in  Chapter  II  of  this  book 
would  alone  serve  to  disprove  his  statements  in  this  regard : 

At  present,  Portland  Cement  is  selling  in  the  South  from  $2.25 
to  $2.65  per  barrel.  We  have,  therefore,  kept  within  safe  limits 
on  that  score  (i.e.,  in  estimating  the  probable  average  selling  price 
at  $1.50  f.o.b.  mill). 

D.    LOW    ESTIMATES    OF    MANUFACTURING    COSTS 

The  estimates  of  manufacturing  and  general  operating  costs 
found  in  cement  prospectuses  are  remarkable,  less  for  their  uni- 
formity than  for  their  extreme  lowness.  One  or  two,  out  of  a 
large  series  in  the  writer's  possession,  figure  on  a  total  cost  of 

68 


METHODS  AND  PROFITS  OF  CEMENT  PROMOTIONS 

80  cents  per  barrel  or  thereabouts ;  but  at  least  four-fifths  of  the 
prospectus-writers  give  an  estimate  for  total  costs  of  between 
45  and  60  cents  per  barrel.  A  few  interesting  examples  carry 
their  cost  estimates  as  low  as  30  or  35  cents  per  barrel. 

In  considering  the  figures  thus  given,  it  must  be  remembered 
that  they  are  not  supposed  to  be  mill-costs  only,  but  to  in- 
clude overhead  charges,  selling  costs,  etc.  To  be  at  all  safe,  they 
should  also  include  heavy  allowances,  not  only  for  ordinary  de- 
preciation, but  for  changes  made  necessary  by  the  continual 
progress  of  the  industry.  When  this  is  understood,  it  is  obvious 
that  not  one  promoted  plant  out  of  twenty  can  ever  hope  to  show 
actual  costs  as  low  as  those  promised  by  the  prospectus-writer. 
In  the  case  of  the  plants  which  expect  to  make  thirty  or  thirty- 
five  cent  cement,  the  proposition  is  not  even  open  to  serious  con- 
sideration. 


E.    EXAGGERATED  ESTIMATES  OF  PROFITS 

By  underestimating  manufacturing  costs,  and  overestimating 
selling  prices  of  the  product,  the  promoter  is  able  to  promise 
profits  of  very  unusual  degree  to  the  investor  in  the  securities  of 
his  new  cement  company.  In  the  final  chapter  of  this  book  some 
facts  are  given  relative  to  the  experience  of  existing  companies, 
which  may  serve  to  compare  with  the  hopeful  estimates  of  the 
promoter,  of  which  the  following  affords  a  fair  sample: 

After  a  careful  investigation  of  the  cost  of  making  cement  at 
the  various  factories  now  in  operation,  we  can  manufacture,  without 
any  doubt,  at  the  following  prices: 

Material  delivered  at  mill,  .04  per  bbl. 

Coal  at  $2.25  per  ton,  .24 

Superintendent  and  office  staff,  .03 

Labor  operating  plant  .14 

Supplies,  .02 

Renewals,  repairs  and  sacks,  .10 

Insurance  and  taxes,  .02 

Contingencies,  .02 

.60  per  bbl. 
69 


THE    PORTLAND    CEMENT    INDUSTRY 

These  figures  look  out  of  reason,  but  the  cost  in  everj  item  is 
figured  at  10  per  cent,  more  than  the  highest  estimate,  and  we 
can  cut  the  profits  half  in  two  and  then  still  have  one  of  the  best 
kind  of  investments. 

3000  bbls.  per  day,  1,095,000  bbls.  per  yr.  at  $1.50  $1,642,500 
Cost  to  manufacture  1,095,000  bbls.  at  60  cents  657,000 


Profit  of  company  per  year  $    985,500 

The  entire  plant  will  cost,  ready  for  operation,  not  over  $750,000. 


CHAPTER 
VI 

THE  CAPITALIZATION  OF  CEMENT 
COMPANIES 

TO  the  investor  in  cement  securities  the  question  of 
proper  capitalization  is  one  of  paramount  import- 
ance. Assuming  that  the  company  is  so  located  and  man- 
aged that  it  can  make  and  market  its  product  at  a  reason- 
able profit  per  barrel,  the  returns  to  the  stockholder  will 
depend  solely  upon  whether  or  not  the  company  has  been 
capitalized  at  a  proper  figure.  If,  as  is  too  often  the 
case  with  recent  promotions,  its  capitalization  is  exces- 
sive, it  will  be  impossible  to  pay  regular  dividends  at 
a  rate  commensurate  with  the  risks  ordinarily  involved 
in  an  industrial  enterprise. 

THE  OBJECTIONS  TO  OVERCAPITALIZATION 

It  is  often  said  that  it  is  a  matter  of  perfect  indifference, 
both  to  the  public  and  to  the  stockholder,  if  a  corporation — 
either  industrial  or  railroad — is  overcapitalized,  since  the  excess 
of  stock  over  true  value  will  be  promptly  discounted  by  a  fall 
in  the  price  of  the  stock.  Though  this  statement  is  true  enough, 
it  overlooks  the  fact  that  there  are  several  good  reasons  for  avoid- 
ing overcapitalization,  particularly  of  an  industrial. 

Fraud  agamst  the  original  purchaser.  The  principal  objec- 
tion is  that  the  usual  purpose  of  overcapitalization  is  to  defraud 
the  original  purchaser  of  the  stock.  When  stock  is  being  sold 
to  the  general  public  through  agents,  as  is  the  case  in  most  of  the 
cement  promotions  now  under  consideration,  the  promoter  or  his 
agent  is  dealing  with  individuals  who  know  nothing  about  the 
industry  in  which  they  are  asked  to  "invest,"  and  who  must  in 
consequence  rely  entirely  upon  the  statements  of  the  prospectus. 
In  order  to  secure  stock  subscriptions  it  is  obviously  necessary  to 


THE    PORTLAND    CEMENT    INDUSTRY 

promise  regular  and  large  dividends ;  and  if  the  company  is 
heavily  overcapitalized  these  promises  can  not  be  kept.  Even 
in  a  reasonably  capitalized  and  honestly  managed  company  the 
stockholder  is  likely  to  have  some  anxious  moments,  but  in  a 
fraudulently  or  foolishly  promoted  company  of  the  type  above 
noted  the  purchaser  of  stock  does  not  even  have  a  fair  gambling 
chance.  He  is  buying  into  a  concern  which  cannot  possibly  pay 
dividends  except  in  unusually  prosperous  years,  and  he  is  in  line 
for  depreciation  of  capital  as  well  as  loss  of  interest. 

Effect  on  company  management.  Stability  of  dividend  re- 
turn is  as  much  to  be  desired  by  the  company  management  as  by 
the  stockholder,  though  that  fact  is  frequently  overlooked.  On 
this  account  overcapitalization  exerts  a  powerfully  injurious  in- 
fluence on  the  history  of  the  company  which  is  so  burdened. 

If  dividends  are  low  or  lacking,  the  stock  of  the  company  will 
depreciate  in  price  to  a  point  fixed  by  its  value  for  purposes  of 
control,  and  not  for  investment.  If  the  dividend  rate,  even 
though  fair  on  the  average,  be  too  irregular,  the  stock  will  also 
lose  its  investment  value  and  become  purely  speculative.  In  either 
case  there  will  be  a  large  floating  supply  of  stock  available,  at 
low  or  greatly  fluctuating  prices,  and  the  temptation  to  manage 
the  company  as  a  speculative  machine  will  be  almost  irresistible. 
These  conditions  have  been  well  exemplified,  during  the  past  de- 
cade, by  the  experience  of  several  of  the  larger  steel  companies, 
which,  though  technically  in  an  excellent  position,  have  had  a 
most  painful  financial  history  owing  to  the  manner  in  which  they 
have  been  handled  for  stock-market  purposes.  In  all  of  these 
cases,  the  primary  cause  of  the  difficulties  in  which  the  companies 
became  involved  was  excessive  capitalization — either  created  at 
the  outset  or  caused  by  later  unjustifiable  stock  issues. 

There  is  another  way  in  which  overcapitalization  has  a  di- 
rectly bad  effect  from  the  management's  point  of  view.  Most  of 
our  American  industrial  companies  have  shown  an  unhappy  fa- 
cility for  periodically  running  short  of  working  capital.  When 
a  company  reaches  this  point,  its  capitalization  and  past  divi- 
dend record  become  matters  of  the  first  importance.  It  is  true 
that  there  are  two  points  in  our  financial  cycles — at  the  height  of 

72 


CAPITALIZATION  OF  CEMENT  COMPANIES 

a  boom  and  at  the  bottom  of  a  depression — at  which  the  ordi- 
nary banker  will  not  make  much  distinction  between  good  and  bad 
companies.  But  at  normal  periods  in  the  money  market,  when 
collateral  or  other  security  is  scrutinized  with  reasonable  care, 
there  will  be  a  very  marked  difference  in  the  ease  of  securing 
funds  between  a  reasonably  capitalized  and  an  excessively  capi- 
talized company. 

THE  BASIS  FOR  REASONABLE  CAPITALIZATION 

Before  the  question  of  overcapitalization  in  proposed  cement 
plants  can  be  satisfactorily  discussed,  it  is  necessary  to  arrive  at 
some  basis  for  determining  what  may  be  considered  to  be  a  rea- 
sonable capitalization  for  a  plant  of  some  given  size,  operating 
under  average  conditions  of  economy. 

Limiting  factors.  There  are  two  factors  which  operate  to 
limit,  in  the  two  opposite  directions,  the  amount  for  which  a 
cement  plant  can  and  should  be  capitalized.  On  the  one  hand, 
it  is  obvious  that  the  capitalization  must  at  least  equal  the 
amount  of  money  actually  spent  on  the  construction  of  the  plant, 
plus  the  working  capital  required.  This  condition  fixes  the  mini- 
mum possible  capitalization,  a  matter  with  which  promoters  are 
rarely  concerned.  The  second  consideration,  which  fixes  the 
maximum  satisfactory  capitalization,  is  that  the  plant  should  be 
capable  of  paying  a  reasonable  industrial  rate  of  dividend,  con- 
tinuously over  a  long  series  of  years,  on  the  total  capitalization. 
It  will  be  seen  later  that  the  minimum  and  maximum  capitaliza- 
tions thus  arrived  at  are,  contrary  to  the  popular  impression, 
not  very  far  apart  for  average  plants  in  the  Eastern  and  Middle 
Western  states.  In  other  words,  a  plant  can  not  be  safely  capi- 
talized for  an  amount  much  in  excess  of  its  actual  cost. 

Minimum  possible  capitalization.  In  the  case  of  a  new  plant, 
to  be  financed  solely  by  stock  issues,  it  is  obvious  that  it  can  not 
well  be  capitalized  for  less  than  the  actual  cost  of  land,  plant 
and  working  capital.  It  is  possible  to  fix  this  necessary  mini- 
mum with  a  fair  degree  of  accuracy. 

Under  the  most  favorable  conditions  as  to  land,  labor  and 

73 


THE    PORTLAND    CEMENT    INDUSTRY 

materials,  it  is  impossible  to  erect  a  cement  plant  and  supply  it 
with  working  capital  for  much  under  one  dollar  of  capital  per 
barrel  of  actual  annual  output.  In  most  parts  of  the  country 
the  ratio  will  run  considerably  higher,  while  in  the  Far  West 
it  may  reach  two  dollars  or  even  more  per  barrel  of  output. 

On  examining  the  table  of  actual  capitalizations  of  existing 
companies  on  page  14,  it  will  be  seen  that  a  number  of 
the  Lehigh  district  companies  are  capitalized  at  less  than  one 
dollar  per  barrel  of  actual  output.  It  must  be  remembered, 
however,  that  most  of  these  companies  date  back  to  periods 
when  everything  involved  in  plant  construction  was  cheaper  than 
at  present,  that  many  of  them  have  financed  new  construction 
from  earnings,  and  that  there  are  occasional  bond  issues  not 
considered  in  that  table. 

Maximum  safe  capitalization.  The  maximum  capitalization 
which  can  be  considered  satisfactory  is  fixed  by  the  consideration 
that  it  should  not  be  so  high  as  to  endanger  a  fair  dividend 
return.  If  we  accept  7  per  cent  as  a  reasonable  rate  for  an  in- 
dustrial, the  plant  should  be  so  capitalized  that  it  is  possible 
to  pay  at  this  rate,  on  the  whole  capitalization,  continuously 
over  a  long  series  of  years. 

If  this  rate  of  return  be  accepted  as  a  fair  expectation,  the 
results  given  in  the  little  table  below  are  of  course  obvious. 

Capitalization  of  company,          Necessary  net  profits  per  bbl. 

per  bbl.  actual  output.                     to  maintain  dividend  rate. 

$1.00  7  cents 

2.00  14  cents 

3.00  21  cents 

4.00  28  cents 

5.00  35  cents 

From  what  is  known  of  present  conditions  in  the  cement 
business,  and  with  the  expectation  that  in  all  parts  of  the  coun- 
try its  margin  of  profit  per  barrel  will  necessarily,  though  per- 
haps slowly,  diminish  in  the  future,  it  would  seem  highly  inad- 
visable to  capitalize  a  plant  anywhere  in  this  country  for  more 
than  four  dollars  per  barrel  of  actual  output,  even  if  at  present 
the  plant  in  question  has  a  remunerative  and  well-protected  local 

74 


CAPITALIZATION  OF  CEMENT  COMPANIES 

market.  In  parts  of  the  United  States  where  the  cement  indus- 
try is  already  on  a  highly  competitive  basis,  any  capitalization 
over  two  dollars  per  barrel  of  output  will  result  in  handicapping 
the  possible  future  growth  of  the  plant.  No  new  company, 
with  all  of  its  experience  and  growth  still  before  it,  can  hope 
to  become  any  serious  factor  in  the  American  cement  industry 
if  it  starts  out  with  a  narrow  margin  of  safety,  for  the  industry 
has  now  reached  a  stage  where  wide  fluctuations  in  annual 
earnings  may  be  looked  upon  as  normal,  and  not  as  exceptional. 

ACTUAL  CAPITALIZATION  OF  EXISTING 
COMPANIES 

Passing  from  more  or  less  theoretical  discussion  of  possible 
bases  of  capitalization,  it  is  of  interest  to  examine  the  experience 
of  existing  companies  in  regard  to  this  point.  During  twenty 
years  we  have  had  a  slow  but  steady  sifting  process  at  work, 
which  has  distinguished  always  between  the  weak  and  the  strong 
companies.  Periodically  there  come  times  when  weak  plants  are 
either  eliminated  entirely,  or  experience  temporary  receiverships, 
or  have  their  growth  checked.  The  stronger,  better  managed 
or  better  located  companies,  on  the  other  hand,  pass  through 
these  periods  of  stress  and  emerge  stronger,  more  important  and 
larger  than  before.  Of  course  all  the  differences  between  the 
sound  and  unsound  companies  cannot  be  charged  against  the 
manner  in  which  they  were  originally  financed,  but  the  question 
of  capitalization  is  of  such  importance  in  this  connection  that 
it  merits  careful  study. 

In  the  table  below  a  selected  series  of  American  cement  plants 
have  been  arranged  by  groups.  Following  each  group  are 
data  on  its  total  capitalization,  its  total  nominal  yearly  capacity, 
and  its  actual  output  during  1907.  The  total  capitalization 
given,  in  each  case,  omits  bond  issues  and  the  stock  issues  of 
subsidiary  companies,  as  these  data  could  not  be  readily  ob- 
tained. The  error  so  introduced,  however,  will  affect  all  the 
groups,  and  as  the  table  is  designed  largely  for  purposes  of 
comparison,  may  be  dismissed  with  this  note.  In  the  last  two 

75 


THE    PORTLAND    CEMENT    INDUSTRY 

columns  of  the  table  are  given,  for  each  group,  its  capitaliza- 
tion per  barrel  of  nominal  annual  capacity,  and  its  capitaliza- 
tion per  barrel  of  actual  output  during  1907.  It  will  be  seen 
that  these  figures,  when  the  different  groups  are  compared,  are 
both  striking  and  varied.  The  lesson  to  be  drawn  from  the 
variations  is  noted  below. 


Capitaliza- 
tion 

Nominal 
capacity 
per  year 

Output, 
1907 

Capital  per  barrel  of 

Nominal 
capacity 

Actual 
output 

Barrels 

Barrels 

Group  1 

$21,200,000 
2,050,000 
15,217,000 

29,750,000 
2,550,000 
17,465,000 

22,890,310 
2,050,284 
7,983,676 

$0.71 
0.80 
0.87 

$0.92 
1.00 
1.91 

Group  2 

Group  3 

Group  4 

21,750,000 
19,300,000 
25,250,000 

7,600,000 
5,400,000 
6,980,000 

2,775,247 
2,581,744 
2,792,000? 

2.86 
3.57 
3.62 

7.83 
7.47 
9.50 

Group  5  

Group  6  ...     ... 

Group  7  ...... 

14,200,000 

2,750,000 

1,289,839 

5.16 

11.01 

The  companies  included  in  the  above  table  represent  about 
three-quarters  of  the  total  American  production  of  Portland 
cement,  so  that  the  results  obtained  from  examination  of  the 
table  may  be  considered  to  have  a  broad  comparative  value. 
The  grouping  adopted  is  as  follows: 

Group  1  includes  seven  of  the  largest  cement  companies  opera- 
ting in  the  Lehigh  district  of  Pennsylvania-New  Jersey.  The 
companies  here  included  are  all  large,  the  smallest  producer  making 
in  the  neighborhood  of  one  million  barrels  per  year,  while  the 
group  together  makes  almost  half  of  the  total  American  output  of 
cement.  The  capitalization  of  these  companies  averages  only  71 
cents  per  barrel  of  nominal  capacity,  and  92  cents  per  barrel  of 
actual  output.  In  other  words,  a  profit  of  only  5  cents  per  barrel 
of  cement  would  be  sufficient  to  enable  the  payment  of  6  per  cent 
dividends  on  the  stock  of  his  group. 

Group  2  is  of  interest  as  showing  that  common-sense  and  con- 
servative capitalization  are  not  necessarily  confined  to  the  larger 
companies.  This  group  consists  of  four  relatively  small  companies 

76 


CAPITALIZATION  OF  CEMENT  COMPANIES 

operating  in  the  Lehigh  district — companies  whose  plants  produce 
from  one-quarter  to  three-quarters  of  a  million  barrels  annually. 
The  capitalization  per  barrel  is,  it  will  be  noted,  only  slightly  in 
excess  of  that  of  Group  1. 

Group  3  includes  fifteen  companies  operating  in  various  parts  of 
the  United  States  outside  of  the  Lehigh  district,  but  mostly  in  the 
East  and  Middle  West.  These  particular  companies  have  been 
selected  as  being,  so  far  as  known,  in  absolutely  sound  technical 
and  financial  condition.  The  group  may  therefore  be  assumed  to 
be  representative  of  the  better  class  of  American  cement  companies, 
exclusive  of  those  in  the  Lehigh  district.  The  average  capitaliza- 
tion of  the  group  is  87  cents  per  barrel  of  nominal  capacity,  and 
$1.91  per  barrel  of  actual  output. 

The  companies  included  in  the  three  groups  so  far  considered 
agree  in  being  commercially  successful,  thoroughly  sound,  and 
conservatively  capitalized.  With  Group  4,  however,  we  reach 
companies  of  an  entirely  different  class,  affording  an  interesting 
contrast  to  those  of  the  three  first  groups. 

Group  4  includes  seven  plants,  all  except  two  of  which  are 
located  west  of  the  Mississippi,  and  all  of  which  are  known  to  have 
been  built  for  the  sake  of  the  promotion  profits,  and  not  for  the 
sake  of  creating;  sound  industrial  enterprises.  It  will  be  seen  that 
their  capitalization  amounts  to  $2.86  per  barrel  of  nominal  capacity, 
and  to  $7.83  per  barrel  of  actual  output  during  1907.  It  will  also 
be  noted  that  their  actual  output  was  only  36  per  cent,  of  their 
rated  capacity,  a  condition  which  often  occurs  in  "promoters" 
plants.  To  pay  7  per  cent,  dividends  on  their  stock  issues,  the 
plants  of  this  group  would  have  to  show  net  earnings  of  55  cents 
per  barrel  of  actual  output. 

Group  5  includes  five  plants,  some  in  the  Lehigh  district  and 
some  elsewhere,  which  owe  their  present  condition  not  to  original 
overcapitalization  but  to  later  injudicious  stock  issues.  They  were 
able  to  produce  during  1907  almost  50  per  cent,  of  their  rated 
capacity,  but  their  basis  of  capitalization  is  so  high  as  to  render 
them  unsafe  except  in  boom  times. 

Group  6  includes  eight  recently  advertised  promotions — three  in 
the  Lehigh  district  and  five  elsewhere.  Assuming  that  they  can 
turn  out  40  per  cent,  of  their  nominal  capacity,  which  is  probably 
over  the  mark,  these  plants  will  have  to  earn  net  profits  of  66% 
cents  per  barrel,  in  order  to  pay  the  assumed  dividend  rate  of  7  per 
cent.  The  possibility  of  doing  this  is  hardly  worth  considering,  in 

77 


THE    PORTLAND    CEMENT    INDUSTRY 

spite  of  which  fact  most  of  the  promoters  promise  not  7  per  cent., 
but  20  per  cent,  or  25  per  cent,  dividends. 

Group  7  includes  nine  cement  companies  which  are  now,  or  have 
been  recently,  in  the  receiver's  hands.  The  cause  of  failure  seems 
to  be  obvious  when  attention  is  directed  to  the  basis  on  which  this 
group  of  plants  was  capitalized.  Referred  to  their  nominal  or 
rated  capacity,  these  plants  were  capitalized  at  $5.16  per  barrel, 
which  proved  to  be  equivalent  to  $11.01  per  barrel  of  actual  output. 
There  is,  in  this  case,  no  need  to  point  a  moral. 


78 


CHAPTER 
VII 

CEMENT  BOND  ISSUES 

BOND  issues  make  up  a  very  small  percentage  of  the 
total  securities  outstanding  against  existing  cement 
plants,  by  far  the  greater  portion  of  the  total  capital 
required  for  the  construction  and  operation  of  these 
plants  having  been  raised  through  stock  issues  alone. 
It  seems,  however,  as  if  the  series  of  companies  now  in 
various  stages  of  promotion  expect  to  place  more  de- 
pendence on  bonds  than  did  the  older  companies,  and  it 
is  very  probable  that  the  bonds  issued  against  such  pro- 
spective plants  will  amount,  in  the  next  few  years,  to 
a  heavy  total.  As  pointed  out  later,  the  security  back 
of  bonds  issued  against  unbuilt  plants  is  usually  very 
different,  both  in  kind  and  in  amount,  from  that  which 
is  back  of  the  bonds  of  seasoned  companies. 

THE  GENERAL  STATUS  OF  INDUSTRIAL  BONDS 

The  average  small  investor,  accustomed  to  the  use  of  the 
word  "bond"  to  designate  our  Government  securities,  has  shown 
a  tendency  to  consider  that  any  security  called  a  bond  has  of 
necessity  certain  elements  of  soundness  and  respectability  not 
inherent  in  other  securities  called  stocks.  There  is,  of  course, 
a  certain  reasonable  basis  for  this  belief.  When  the  two  terms 
are  properly  used,  the  stockholder  is  merely  a  partner,  while 
the  bondholder  is  a  creditor;  and  so  long  as  the  security  back 
of  the  bond  issue  is  of  proper  character  and  amount,  there  is 
little  possibility  of  loss  on  a  bond  investment  as  compared  with 
that  on  a  purchase  of  stock.  In  dealing  with  an  industrial  bond 
it  is  peculiarly  necessary  to  see  that  this  security  is  present. 

Under  ordinary  conditions,  it  may  be  said  that  a  sound  bond 
issue  should  fulfil  two  conditions : 

79 


THE    PORTLAND    CEMENT    INDUSTRY 

1.  Security  of  principal.     The  bond  issue  should  be  so  small, 
relative  to  the  value  of  the  property  it  covers,  that  even  in  a  fore- 
closure sale  the  property  will  bring  enough  to  pay  off  the  bonds 
in  full. 

2.  Security    of   income.     The    earning   power    of   the   property 
against  which  the  bonds  are  issued  should  be  sufficient  to  cover, 
even   during   a   series   of   the   poorest   business   years,   the   annual 
charges  on  the  bonds. 

A  third  condition  it  is  highly  desirable,  though  not  neces- 
sary, that  the  bonds  should  fulfil : 

3.  Increase   in   security.     The   average   surplus   earning  power 
of  the  property  should  be  sufficient  to  permit  either  the  creation  of 
a  bond-retirement  fund  from  earnings,  or  the  creation  of  an  addi- 
tional equity  through  expenditures  on  the  enlargement  and  improve- 
ment of  the  property. 

All  of  the  above  conditions  are  fulfilled  by  the  average  first 
mortgage  issue  of  the  better  American  railroads.  They  are 
often  fulfilled  by  issues  of  bonds  against  old-established  and 
prosperous  industrial  concerns.  They  can  rarely,  if  ever,  be 
fulfilled  by  bonds  issued  against  industrial  plants  before  the 
completion  of  such  plants. 

BOND  ISSUES  AGAINST  ESTABLISHED  PLANTS 

Occasionally  bonds  are  offered  which  are  a  lien  against  the 
plants  of  old  and  well-established  cement  companies.  When  this 
is  done,  it  is  usually  for  one  of  two  purposes.  Either  the  pro- 
ceeds of  the  bond  issue  are  to  be  spent  for  new  construction, 
or  the  bonds  are  issued  in  order  to  capitalize  expenditures 
already  made  for  extensions  and  previously  paid  for  out  of  sur- 
plus. 

Bonds  issued  under  such  conditions  must,  for  satisfactory 
flotation,  be  accompanied  by  reasonably  full  statements  as  to 
the  present  financial  condition  and  past  earning  capacity  of  the 
company.  If  these  statements  show  that,  even  during  the  poor- 
est years,  the  minimum  net  earnings  of  the  company  would  have 
been  sufficient  to  pay  the  annual  charges  on  the  bond  issue,  the 

80 


CEMENT  BOND  ISSUES 

question  of  security  of  income  may  be  regarded  as  settled.  As 
to  security  of  principal,  data  should  be  obtained  showing  the 
value,  above  existing  liens,  of  the  present  properties  of  the  com- 
pany. Satisfactory  arrangements  to  retire  the  bonds  at  or  be- 
fore maturity  through  sinking  fund  operations  must  also  be 
described  in  detail. 

Assuming  that  the  security  offered  is  ample,  the  question  re- 
maining is  as  to  the  price  at  which  cement  bonds  of  high  grade 
would  become  reasonably  profitable  investments.  To  judge  from 
the  more  extended  data  which  we  have  on  iron  and  steel  securi- 
ties, even  first-class  cement  bonds  during  years  of  depression 
might  be  expected  to  sell  on  a  6^  to  7  per  cent  income  basis, 
while  in  years  of  high  security  prices  they  may  sell  on  a  5  or 
4f  per  cent  basis. 

BOND  ISSUES  AGAINST  UNBUILT  PLANTS 

Bond  issues  against  unbuilt  plants  make  up  a  relatively  small 
proportion  of  the  flood  of  new  cement  securities  with  which  the 
country  has  been  deluged  during  the  past  few  years.  There 
are  indications  that  this  type  of  promotion  is  becoming  more 
favorably  thought  of,  and  with  the  advent  of  prosperous  times 
we  may  fairly  expect  to  see  bond  issues  on  proposed  plants  ap- 
pear in  quantity. 

It  may  be  said  to  the  credit  of  such  issues  that  they  are 
rarely  turned  out  in  connection  with  absolutely  fraudulent 
schemes.  They  offer  a  decided  advantage  to  the  honest  but  im- 
pecunious promoter,  in  that  by  a  bond  issue  he  may  borrow  suf- 
ficient money  to  more  than  pay  for  the  construction  of  his  plant, 
while  he  still  owns  and  controls  the  company  through  its  stock 
issue.  That  such  a  condition  is  possible  is  due  entirely  to  the 
magic  which  inheres  in  the  word  "bond."  If  the  securities  so 
offered  were  called  stock,  or  even  preferred  stock,  they  would 
be  very  difficult  to  float  at  par,  but  as  bonds  they  find  a  ready 
market,  even  though  it  is  demonstrable  that  such  bonds  are  little 
more  secure  than  the  stock  issues  which  they  precede. 

81 


THE    PORTLAND    CEMENT    INDUSTRY 


EXAMPLES  OF  TYPICAL  CEMENT  BOND  OFFERINGS 

The  characteristics  of  bonds  issued  against  uncompleted 
industrial  plants  are  best  brought  out  by  a  study  of  actual  in- 
stances. For  this  purpose  two  fair  examples  have  been  selected 
from  among  the  offerings  of  the  past  year.  These  particu- 
lar examples  have  been  picked  out  because  they  contain  all  the 
elements  necessary  for  use  as  illustrating  the  general  features 
of  such  bonds.  The  propositions  with  which  they  are  connected 
are  neither  strikingly  bad,  nor  exceptionally  good,  as  compared 
with  the  average  run  of  recent  cement  promotions,  so  that  these 
two  bond  issues  can  be  accepted  as  being  fairly  representative 
of  the  whole  group  of  similar  issues. 

Example  1.  Offering  of  an  issue  of  $1,500,000  bonds  of  an 
unbuilt  cement  plant.  Bonds  are  6  per  cent,  twenty  year,  first 
mortgage.  Capital  stock  of  company  is  $2,500,000.  "A  first  offer- 
ing of  the  bonds  of  this  company  to  the  amount  of  $750,000  is 
made  to  investors  at  par  with  absolute  assurance  of  their  conserva- 
tive, safe  and  attractive  character.  They  are  based  upon  the  most 
reliable  and  substantial  security,  the  value  of  which  is  four  or  five 
times  as  great  as  the  par  value  of  the  entire  bond  issue  as  demon- 
strated by  the  development  and  opinions  of  experts  and  engineers 
as  to  the  vast  resources  of  coal,  shale  and  limestone  on  the  land 
owned  by  the  company."  Proceeds  to  be  used  in  construction  of  a 
plant  with  capacity  of  2,000  barrels  per  day. 

The  "most  reliable  and  substantial  security"  above  noted 
consists  of  the  following  items: 

1.  The  bonds  are  a  first  mortgage  on  4,420  acres  of  land.     "Ex- 
pert opinion  has  estimated  that  the  value  of  the  coal  on  the  property, 
on  a  basis  of  10  cents  per  ton  in  the  ground,  would  return  to  the 
company  over  $3,000,000;  and  the  shale  and  limestone,  estimating 
each  item  at  2  cents  per  ton  in  the  quarries,  the  values  of  each 
would  be  $2,000,000,  a  total  minimum  valuation  of  raw  material 
on  the  company's  property  of  $7,000,000." 

2.  The  bonds  will  be  a  first  mortgage  on  a  2,000-barrel  plant 
when  built,  which  plant  is  to  be  built  on  the  proceeds  of  the  bond 
sale.     The  construction  of  such  a  plant,  it  may  be  noted,  would 
cost  perhaps  $600,000.     The  reliable  experts  of  the  company  figure 
that  it  can  produce  cement  at  "a  cost  not  exceeding  $1.75  per  ton 

82    • 


CEMENT  BOND  ISSUES 

of  cement,  readily  salable  at  $6  per  ton  or  more  at  the  mill."  These 
figures  may  be  assumed  to  correspond  approximately  to  35  cents 
and  $1.20  per  barrel,  respectively,  and  such  a  margin  of  profit  is 
certainly  interesting — if  true.  On  this  basis  it  is  a  simple  matter 
to  prove  that  a  400-ton  plant,  operating  365  days  in  the  year,  would 
make  a  net  profit  of  $620,500  annually,  which  is  obviously  ample  to 
provide  not  only  for  the  $90,000  of  fixed  charges  on  the  bonds,  but 
for  heavy  dividends  on  the  stock  and  for  ample  retirement  funds. 
Example  2.  Offering  of  an  issue  of  $2,000,000  bonds  of  an 
unbuilt  cement  plant.  Bonds  are  6  per  cent,  twenty  year,  first 
mortgage.  Capital  stock  of  company  is  $5,000,000.  Bonds  offered 
at  par,  with  stock  bonus  to  secure  funds  for  construction  of  a  5,000- 
barrel  plant,  with  guarantee  of  $100,000  working  capital.  Present 
security  back  of  bonds  is  the  ownership  of  700  acres  of  land.  The 
ultimate  security  will  be  a  mortgage  on  a  plant  costing  possibly 
$1,500,000.  A  plant  of  this  size,  operating  360  days  in  the  year, 
and  making  a  net  profit  of  65  cents  per  barrel,  will,  as  pointed  out 
in  the  prospectus,  show  total  net  profits  of  $1,170,000  annually. 
This  is  of  course  ample  to  cover  the  charges  on  the  bonds,  which 
amount  to  only  $120,000  per  annum. 


SECURITY  OFFERED  FOR  BOND  ISSUES 

The  two  preceding  examples  have  been  selected  from  among 
recent  bond  offerings,  to  illustrate  more  fully  the  type  and 
amount  of  security  that  is  offered  for  bonds  of  this  class.  These 
issues  have  been  extensively  advertised,  and  are  fairly  typical 
of  their  class  in  all  respects.  On  examination  and  comparison 
it  will  be  seen  that  they  offer  security  of  precisely  the  same 
present  grade,  and  differ  only  in  the  enthusiasm  with  which  they 
set  forth  the  possible  future  earning  power  of  the  plants  when 
completed.  In  each  case  the  bonds  as  now  issued  are  secured 
by  a  first  mortgage  on  certain  real  property  at  present  unim- 
proved but  underlaid  by  ample  deposits  of  cement  materials. 
In  each  case  the  purpose  of  the  bond  flotation  is  to  secure  funds 
for  the  erection  of  a  large  modern  cement  plant  on  the  com- 
pany's property.  In  each  case  the  amount  of  funds  to  be  raised 
by  the  bond  issue  is  considerably  in  excess  of  the  cost  of  con- 
structing such  a  plant.  In  each  case,  therefore,  the  ultimate 
security  back  of  the  bonds  will  represent  less  than  100  per  cent 

83 


THE    PORTLAND    CEMENT    INDUSTRY 

of  the  face  value  of  the  bonds  themselves,  to  say  nothing  of  the 
liberal  stock  issues. 

When  these  facts  are  considered,  it  is  obvious  that  such  bond 
issues  are  very  inadequately  secured.  In  case  of  default  and 
foreclosure,  the  plant  could  not  be  expected  to  bring  under 
forced  sale  anywhere  near  its  actual  cost  of  construction,  and 
therefore  the  bondholders  cannot  expect  to  get  back,  in  such  a 
contingency,  as  much  as  they  paid  for  their  bonds.  So  long 
as  the  plant  is  in  profitable  operation,  holders  of  such  bonds  are 
secured,  but  a  receivership  means  a  heavy  scaling  down  in  the 
bonds.  A  banker  accustomed  to  dealing  in  investment  securities 
will  realize  that  these  characteristics — safety  in  time  of  pros- 
perity, but  heavy  loss  of  value  on  receivership  or  reorganization 
— are  characteristic,  not  of  the  usual  first  mortgage  bond  to 
which  he  is  accustomed,  but  of  junior  issues,  debentures  and  the 
stock  issues.  He  should  be  prepared,  therefore,  to  scrutinize 
even  more  carefully  than  usual  the  provisions  of  the  deed  of 
trust,  and  the  evidence  offered  that  the  bond  issue  placed 
before  him  will  always  be  secured  by  earnings,  since  it  is  not 
fully  secured  by  property  value.  Regarded  purely  as  income 
bonds  or  as  preferred  stock,  such  bond  issues  may  have  some 
value,  but  they  must  obviously  be  differentiated  sharply  from 
such  well-secured  issues  as  the  average  railroad  first  mortgage. 

EARNING  POWER  BACK  OF  THE  SECURITY 

Since  the  issues  in  question  are  really  to  be  regarded  as  de- 
bentures, the  principal  question  which  the  banker  or  bond- 
buyer  must  settle  is  whether  the  proposed  plants  will  every  year 
over  a  long  series  of  years  show  sufficient  net  profits  to  accom- 
plish the  following  objects: 

1.  To  satisfy  the  annual  interest  charges  on  the  bonds. 

2.  To   set   aside  an   ample   allowance   for   replacement   of   raw 
materials  used. 

3.  To  make  heavy  allowances  for  depreciation  of  plant. 

4.  To  provide  for  improvement  and  growth  of  plant,  so  that  in 
time  the  property  security  for  the  bond  issue  will  increase. 

5.  To  provide  a  sinking  fund  for  the  retirement  of  bonds. 


CEMENT  BOND  ISSUES 

In  determining  the  adequacy  of  the  probable  earning  power 
of  the  plant,  certain  data  are  readily  available.  Annual  Gov- 
ernment reports,  which  have  now  been  issued  for  a  long  series 
of  years,  furnish  detailed  figures  on  the  production  and  average 
selling  value  of  cement  and  of  fuels,  in  each  state  of  the  Union. 
These  figures  alone  will  serve  to  controvert  many  of  the  highly 
exaggerated  estimates  presented  in  prospectuses  as  to  the  possible 
profits  in  the  cement  business.  For  a  proposed  plant  in  any 
given  district  the  question  of  probable  profits  and  growth  will  de- 
mand consideration  of  a  large  number  of  factors — labor  condi- 
tions, character  of  raw  materials  available,  grade  and  cost  of 
fuel,  economy  of  plant  construction,  location  and  status  of  com- 
petitive plants,  freight  rates,  present  size  and  possible  growth 
of  local  market,  average  previous  selling  prices  in  both  local 
and  competitive  markets.  When  these  questions  have  been  settled 
satisfactorily,  there  still  remains  a  more  important  personal  prob- 
lem— whether  or  not  the  proceeds  of  the  bond  issues  will  be 
entrusted  to  men  who  will  use  them  honestly,  economically  and 
intelligently  in  the  construction  and  operation  of  the  proposed 
plant. 


CHAPTER 
VIII 

THE  PROFITS  AND  LOSSES  OF  CEMENT 
MANUFACTURE 

BEFORE  closing  this  discussion  of  the  financial  side 
of  the  cement  industry,  it  is  necessary  to  take  up 
more  directly  the  question  of  profits,  in  order  that  some 
idea  may  be  obtained  as  to  what  may  reasonably  be  ex- 
pected from  an  investment  of  this  nature.  It  would,  of 
course,  be  possible  to  work  out  a  purely  theoretical  expo- 
sition of  this  phase  of  the  subject,  giving  estimated  costs 
of  cement  manufacture  under  certain  fixed  conditions. 
But  the  conditions  governing  costs  are  so  numerous  and 
variable,  that  this  method  of  procedure  would  seem  to 
promise  results  of  little  general  utility.  In  place  of  such 
general  estimates,  the  present  chapter,  therefore,  con- 
tains summaries  of  the  actual  results  obtained  in  the 
operations  of  several  large  and  well-known  Portland 
Cement  companies.  Examination  and  study  of  these 
accounts  will  serve,  far  better  than  mere  estimates,  to 
correct  the  errors  involved  in  the  extravagant  claims  of 
promotion  literature. 

ACCOUNTS  OF  A  LEHIGH  DISTRICT  CEMENT 
COMPANY,  1899-1907 

The  accounts  summarized  below  are  those  of  the  American 
Cement  Company,  one  of  the  largest  of  the  Lehigh  district  com- 
panies : 

The  American  Cement  Company  is  the  only  large  cement 
corporation  whose  stock  is  listed  on  one  of  the  larger  exchanges, 
and  which  publishes  audited  annual  reports.  Its  policy  of  full 

87 


THE    PORTLAND    CEMENT    INDUSTRY 

publicity  deserves  the  more  credit  in  that  it  considerably  ante- 
dates the  much  advertised  adoption  of  the  same  policy  by  the 
United  States  Steel  Corporation. 

Financially,  the  American  Cement  Company  of  New  Jersey 
is  a  holding  company,  with  a  capital  stock  of  $2,000,000,  and 
an  original  bond  issue  of  $1,000,000,  now  considerably  reduced 
through  sinking  fund  operations.  At  various  dates  smaller 
bond  and  stock  issues  have  been  made  for  the  account  of  sub- 
sidiary companies,  but  the  bulk  of  these  issues  of  the  subsidiaries 
have  been  absorbed  through  the  operations  of  sinking  funds  and 
by  direct  appropriation  from  surplus. 

Industrially,  the  subsidiaries  of  the  American  operate  a 
group  of  plants  in  the  Lehigh  district  of  Pennsylvania,  with  a 
rated  or  nominal  capacity  of  2,400,000  barrels  annually,  and 
an  actual  output  quite  closely  approximating  to  that  amount, 
as  shown  by  the  annual  reports.  A  relatively  small  portion  of 
this  output  is  natural  cement,  but  by  far  the  bulk  of  the  pro- 
duction is  Portland  Cement.  One  of  the  subsidiaries  is  the  sel- 
ling agency  for  the  product  of  the  others. 

A  summary  of  the  results  of  the  company's  operations  for 
the  years  1900  to  1907,  inclusive,  follows: 


1900 

1901 

1902 

1903 

1904 

1905 

1906 

1907 

Net  earnings  of 
subsidiaries. 
Fixed  charges. 

Surplus   over 
charges    .    . 
Expenses  of 
holding  Co. 

Balance    avail- 
able for  div 
Dividends  paid 

371,523 
102,688 

246,334 
77,812 

296,480 
80,537 

492,145 
97,769 

216,190 
95,625 

208,815 
90,910 

420,183 
117,012 

481,810 
128,358 

268,835 
17,296 

168,522 
15,954 

215,943 
22,467 

394,376 
19,703 

120,565 
11,964 

117,905 
12,630 

303,172 
15,512 

353,451 
22,412 

251,539 
220,000 

152,  568  !  193,  475  374,  673 
160,000160,000160,000 

108,601 
140,000 

105,275 
120,000 

287,660 
140,000 

331,039 
140,000 

The  balance  available  for  dividends,  or  the  net  profit  of  the 
American  Cement  Company  of  New  Jersey,  in  each  year  since 
its  organization,  is  given  in  the  following  table.  The  second 
column  of  this  table  contains  the  actual  amount  of  such  annual 


88 


PROFITS  AND  LOSSES  OF  CEMENT  MANUFACTURE 

profits  in  dollars;  the  third  column  gives  the  same  items  ex- 
pressed in  percentages  of  the  stock  capitalization  of  the  com- 
pany. 

Year.  Net  profits.  Profits  in  per  cent 

of  capital. 

1900  $251,539  12.57 

1901  152,568  7.62 

1902  193,475  9.67 

1903  374,673  18.73 

1904  108,601  5.43 

1905  105,275  5.26 

1906  287,660  14.38 

1907  331,039  16.55 

Average,  $225,604  1 1 .28 

When  it  is  borne  in  mind  that  the  American  Cement  Com- 
pany is  conservatively  capitalized,  its  stock  issue  being  only 
slightly  in  excess  of  one  dollar  for  each  barrel  of  actual  annual 
output,  it  will  be  seen  that  the  cement  industry  does  not  yield 
profits  at  the  extravagant  rate  claimed  by  promoters.  An  aver- 
age profit  of  slightly  over  11  per  cent,  as  shown  by  eight  years' 
experience,  cannot  be  considered  more  than  a  fair  industrial  re- 
turn, by  no  means  comparable  to  the  profits  obtainable  in  the 
iron  and  steel  business  under  favorable  conditions.  On  the  other 
hand,  while  these  accounts  show  no  abnormal  profits,  they  also 
show  no  serious  tendencies  toward  deficits. 

ACCOUNTS  OF  A  MICHIGAN  CEMENT  COMPANY, 
1906,  1907,  1908 

The  Wolverine  Portland  Cement  Company,  operating  in 
Michigan,  has  published,  at  various  dates,  its  annual  reports 
for  the  three  years  ending  on  February  28,  1908.  These  are 
of  interest  for  comparison  with  those  from  the  Lehigh  district 
cited  previously. 

As  an  introduction,  it  may  be  said  that  the  Wolverine  is 
one  of  the  best  of  the  Michigan  companies  which  use  marl  and  a 
wet  process.  It  operates  two  plants,  in  closely  adjoining  towns, 

89 


THE    PORTLAND    CEMENT    INDUSTRY 

and  is  credited  with  a  rated  or  nominal  capacity  of  800,000 
barrels  per  year.  It  may  be  noted  that  its  actual  output  is  much 
nearer  to  its  rated  capacity  than  in  most  cement  plants.  The 
income  account  for  the  three  years  in  question  follows;  rear- 
ranged somewhat  from  the  form  in  which  it  has  usually  been 
published : 


Income  account  of  Wolverme  Portland  Cement  Company. 
For  year  endmg  February  28. 


Gross  receipts  from  operation    .... 
Operating  costs,  repairs  and  taxes   .    . 

1906 
$655,981 
514,777 

1907 
$887,014 
555,567 

1908 
$705,292 
496,729 

Net  earnings  from  operation     .... 
Rents  and  other  income  

141,204 
11,635 

331,447 
957 

208,563 
1,421 

Total  net  earnings 

152,839 

332  404 

209  984 

Charged  off,  depreciation,  etc.     .    .    . 

52,839 

37,404 

14,984 

Balance  available  for  dividends    .    .    . 
Dividends  paid  during  year    

100,000 
60,000 

295,000 
260,000 

195,000 
195,000 

Surplus  for  year            .    . 

40  000 

35  000 

0 

Previous  surplus    ...        .    . 

125  000 

165  000 

200  000 

Surplus  at  close  of  year  

$165,000 

$200,000 

$200.000 

A  very  much  condensed  general  balance  sheet  for  the  same 
three  years  follows : 

BALANCE  SHEET  OF  WOLVERINE  PORTLAND  CEMENT 


Assets 

Permanent  assets 
Current  assets 
Cash  assets 

Total  assets 

Liabilities. 
Capital  stock 
Surplus 
Accounts  payable 


COMPANY. 

As  of  February  28, 

1906.  1907 

$  987,241      $  977,919 
152,440          101,097 
38,480          128,025 


1908 

$  974,711 
102,519 
128,429 


$1,178,161  $1,207,042  $1,205,659 


,000,000  $1,000,000  $1,000,000 

165,000     200,000     200,000 

13,160       7,042       5,659 


Total  liabilities   $1,178,161  $1,207,042  $1,205,659 

90 


PROFITS  AND  LOSSES  OF  CEMENT  MANUFACTURE 

On  inspection  of  the  income  accounts  above  presented,  it 
will  be  seen  that  the  net  earnings  from  operation  have,  in  the 
three  years  covered  by  the  reports,  amounted  respectively  to 
14.12  per  cent,  33.14  per  cent  and  20.85  per  cent  on  the  total 
capitalization  of  the  company.  This  is  at  the  average  rate  of 
22.71  per  cent  per  annum.  The  operating  ratio  is  very  low, 
the  operating  costs  for  the  three  years  amounting  respectively 
to  78.1  per  cent,  62.6  per  cent,  and  70.4  per  cent  of  the  gross 
receipts.  The  amounts  carried  as  "charged  off,  depreciation, 
etc."  appear  to  have  been  selected  for  the  simple  purpose  of 
leaving  a  surplus  which  could  be  stated  in  conveniently  round 
figures.  In  each  year  the  dividends  paid  have  been  at  a  rate 
which  practically  used  up  the  balance  available  for  dividends. 

In  view  of  all  these  facts,  a  proper  interpretation  of  the  re- 
ports would  require  a  knowledge  of  factors  which  are  not  pre- 
sented. If  the  operating  costs  quoted  contain  proper  allow- 
ances for  depreciation,  then  the  operating  ratio  is  so  low  as  to 
point  to  unusually  low  mill  costs  for  a  plant  of  this  type. 

DIVIDENDS  OF  TWO  ESTABLISHED  COMPANIES 

It  is  of  interest  to  compare  the  extravagant  dividends 
promised  in  the  average  prospectus  with  the  results  of  actual 
experience  in  the  past.  The  table  below  contains  data  on  the 
dividends  paid  by  two  large  and  well-established  cement  com- 
panies during  a  long  term  of  years.  The  two  companies  have 
been  selected  as  covering  a  wide  range  in  locality  and  practise. 
The  American  Cement  Company  is  one  of  the  largest  in  the  well- 
known  Lehigh  district  of  Pennsylvania,  which  certain  natural 
advantages  have  united  to  make  the  principal  cement  producing 
region  of  the  United  States.  The  Sandusky  Portland  Cement 
Company,  on  the  other  hand,  is  the  largest  and  probably  the 
best  equipped  of  the  group  of  plants  in  the  Middle  West  which 
use  marl  as  a  raw  material.  The  two  companies,  therefore,  dif- 
fer widely  as  to  location,  markets  and  technical  factors,  but 
agree  in  being  long  and  favorably  known  as  large  cement  pro- 
ducers. In  spite  of  this  last  fact,  it  will  be  seen  from  the  fol- 

91 


THE    PORTLAND    CEMENT    INDUSTRY 

lowing  table  that  neither  of  them  has  been  able  to  show  the 
twenty  per  cent  to  thirty  per  cent  annual  dividends  that  are  so 
freely  promised  by  promoters  at  the  present  day: 

Dividends  paid  by  established  companies,  1898-1908. 


American  Cement  Co. 

Sandusky  Portland  Cement  Co.* 

Year 

Rate 

Preferred  Stock 

Common  Stock 

Rate 

Rate 

1898 

6  per  cent. 

2  per  cent. 

1899 

6 

4 

1900 

8  per  cent. 

6 

6 

1901 

8 

6 

4 

1902 

8 

6 

6 

1903 

8 

6 

6 

1904 

7 

6 

3 

1905 

6 

6 

6 

1906 

6 

7 

7 

1907 

8 

4^ 

3 

1908 

6 

Average 

7.22  per  cent. 

5.41  per  cent. 

4.27  per  cent. 

*  In  justice  to  the  cement  industry  it  is  necessary  to  point  out  that,  in 
addition  to  the  dividends  above  noted,  stockholders  of  the  Sandusky  Cement 
Co.  have  at  various  dates  received  "rights"  whose  exact  value  is  difficult 
of  determination. 

THE  CHANCE  OF  SUCCESS  AND  FAILURE 

A  favorite  claim  of  the  cement  promoter  is  that  the  cement 
industry  has  been  free  from  failures.  This  claim,  ridiculous 
enough  on  its  face,  is  by  no  means  difficult  to  disprove.  Ever 
since  its  commencement  in  the  United  States,  the  Portland  Ce- 
ment industry  has  had  its  full  share  of  disappointment,  liti- 
gation and  failure. 

In  the  early  stages  of  the  industry  here,  a  large  number  of 
plants  failed,  not  primarily  because  of  financial  troubles,  but 
because  of  technical  difficulties.  Of  the  plants  built  at  different 
points  between  1875  and  1895,  it  would  probably  be  a  fair 
estimate  to  say  that  not  over  half  have  been  able  to  survive  these 
early  difficulties  and  get  on  a  sufficiently  sound  footing  to  be  in 
existence  at  the  present  day.  From  1895  to  1905,  the  percent- 


92 


PROFITS  AND  LOSSES  OF  CEMENT  MANUFACTURE 

age  of  mortality  among  cement  plants  was  less,  because,  while 
the  technical  side  of  the  matter  had  come  to  be  well  understood 
the  companies  formed  were  still  conservatively  financed  and 
managed.  During  the  past  few  years,  however,  the  percentage 
of  litigation  and  failure  has  again  increased,  for  the  business 
world  and  the  courts  now  have  to  deal  with  a  large  number  of 
badly  handled  companies,  promoted  more  for  the  sake  of  stock 
selling  than  for  cement  manufacturing.  Recent  troubles  have, 
therefore,  been  chiefly  due  to  fraudulent  promotion  or  to  fool- 
ish investment. 

On  going  over  a  long  series  of  records  concerning  cement 
companies  which  have  been  organized  during  the  past  five  years, 
certain  ratios  of  success  seem  to  be  fairly  well  established.  These 
may  be  summarized  as  follows: 

1.  Of  one  hundred  cement  companies  taking  out  charters,  over 
half  will  fail  to  sell  sufficient  stock  to  even  commence  actual  con- 
struction.    In  these  cases   the   stock   purchaser   may   receive   back 
some  of  his  money. 

2.  Of  the  plants  which  begin  construction,  about  half  are  unable 
to  complete  it  without  reorganization  and  new  security  issues. 

3.  About  25  per  cent,  of  the  plants  which  actually  get  to  the 
operating  stage  default  on  their  bond  issues  at  some  time  during  the 
first  five  years  of  their  history,  or  are  prevented  from  such  default 
only  by  the  issue  of  secured  notes  or  other  securities  paid  for  by 
the  stockholders. 

4.  Of  each  hundred  companies  organized,  not  over  five  will  ever 
pay  dividends  to  the  original  stockholders  sufficient  to  make  a  fair 
interest  return  on  the  investment. 

These  conditions  are  not  due  to  any  radical  unsoundness  in 
the  cement  industry  itself,  as  compared  to  any  other  important 
line  of  industrial  activity,  but  to  the  unsound  manner  in  which 
too  many  of  the  recent  cement  projects  have  been  financed  and 
handled.  Given  an  originally  sound  proposition,  with  conser- 
vative financing  and  good  management,  and  a  cement  company 
has  as  much  chance  of  ultimate  success  as  a  new  iron  or  steel 
company.  The  margin  of  profit  in  the  industry  is,  however, 
now  too  low  to  permit  overissue  of  securities,  technical  unsound- 
ness,  or  careless  control. 

93 


XtS 

f  OF  THE 

(    UNIVERSITY  ) 

\  OF  " 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 


NOVl? 
SANTA 


30w-6,'14 


2391 


/g"7  72.0 


a-3 


THE  UNIVERSITY  OF  CAUFORNIA  LIBRARY 


